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CMC Markets Analyst On FXCM: The Industry Will Change How It Regulates Leverage

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Speaking to Benzinga, CMC Markets Chief Market Analyst Michael Hewson said that the losses FXCM Inc (NYSE: FXCM) has suffered following the Swiss National Bank’s move will probably cause the forex industry to change how it regulates leverage.

“A lot of the damage that’s been done has basically been a result of high leverage,” Hewson explained.

He added that the EUR/CHF has traded in a ten-point range over the past couple of weeks, which causes people to increase their leverage, because that’s the only way to make any meaningful profits.

“If the market moves in a tight range and its low volatility, your leverage generally tends to go up, but the risk with that is if you do get an adverse market movement either up or down, you make a lot of money or lose a lot of money,” he said.

Related Link: Why FXCM Fell 85%

In yesterday’s case, Hewson explained, the bids just disappeared. Once the SNB pulled its currency peg, all the bids got pulled and the next price that came in after 120 was 101, Hewson said. That’s a 19-figure move.

“Well, if you’re leveraged up to the eyeballs, that’s basically bankruptcy,” he said.

Shares of FXCM were halted on Friday, but then resumed trading after hours. 

Latest Ratings for FXCM

DateFirmActionFromTo
May 2015Keefe Bruyette & WoodsMaintainsUnderperform
Mar 2015CitigroupMaintainsSell
Mar 2015Keefe Bruyette & WoodsDowngradesMarket PerformUnderperform

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Posted-In: Brokerage CMC Markets fxcm Michael HewsonForex Exclusives Markets Analyst Ratings

 

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