CMC becomes latest e-FX loser

Currency Management Corporation (CMC), one of the longest-serving firms in the retail and mid-market online FX trading industry, has pulled out of the US. The UK company, which carried out its first online FX trade in 1996, said this was in response to the new regulations from the Commodity Futures Trading Commission (CFTC) last December, aimed at limiting internet retail trading.

"We sought legal advice regarding the new rules and that advice was 'don't touch it'," Roger Hynes, marketing manager at CMC, told RiskNews/I>’ sister publication FX Week ( "We lost a lot of clients pulling out of the US, but it's got too many risks."

Following on from the closure of New York-based Matchbook FX in the past few months, CMC's withdrawal makes worrying news for the array of FX trading services targeting the retail and mid-market that have sprung up in the United States in the past two years.

But officials at firms such as Gain Capital, Midlandeuro, MG Financial and HotSpot FX remain hopeful that online forex trading for this client segment still has a future. They said their services differ from Matchbook's business model and they have either fulfilled requirements to legitimise themselves with the CFTC or are in the process of doing so.

Mark Galant chief executive at New Jersey-based Gain Capital, said he believes Matchbook's use of the electronic communications network (ECN) model contributed to its failure. An ECN matches buyers and sellers of FX and, in theory, does not make its own markets. Gain, however, is a market maker. "I think their problem was that they never got enough end-users," Galant said. "If you are only relying on end-users for liquidity when the market moves sharply, they back away and liquidity disappears right when you need it."

. Hotspot FX, also based in New Jersey, is an ECN, but said it is experiencing success. "We have been doing very well. Our volumes keep growing and every month is a record for us," said David Ogg, chief executive.

Both Galant and Ogg added that assembling a team with FX experience is essential for survival in the retail FX market. "We understand FX," said Galant, who previously managed global forex options at Credit Suisse. Ogg previously managed New York FX for Dresdner Kleinwort Benson and HSBC.

Midlandeuro, based in California, is another player that continues to trade in the difficult online FX trading environment. Brian Hannan, director of operations, said the initial excitement about FX day trading has subsided. "Online day trading has not taken off as expected," he said. "Our biggest revenues come from brokerage and money management. People are catching on in the US though."

Hannan agreed that Matchbook's ECN model contributed to its downfall. "Matchbook was looking to be a microcosm in a macro market," he said.

New York-based MG Financial also believes the retail FX market remains buoyant and able to support a number of players. Jonathan Zeigel, director of marketing at MG in New York said: "There is a lot of interest in FX at the moment and online trading is growing." MG also acts as a market maker and, said Ziegel, can guarantee liquidity for its clients. "We have around 1,500 traders on the system, and our own dealers will take the other side of the trade so it's never a problem."

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