If you are a currency trader or retail investor who has suffered losses on margin with (FXCM) Forex Capital Markets, LLC), you may be subject to arbitration brought by FXCM to recover the outstanding margin debt (also known as a “margin debit” balance) against you.
FXCM is the largest online foreign currency exchange (FOREX) market broker in the United States, operating a Forex trading platform allowing both retail and institutional clients to speculate on global foreign exchange markets in what is known as “margin forex trading”. FXCM is a registered Futures Commission Merchant (FCM) and Retail Foreign Exchange Dealer with the Commodity Futures Trading Commission (CFTC) and is a member of the National Futures Association (NFA # 0308179). FXCM Inc., a publicly traded company listed on the New York Stock Exchange (NYSE: FXCM).
Based on the recent increase in the strength of the Swiss francs against certain currencies, many of its clients suffered substantial investment losses – who traded FOREX on margin – which may have caused its them owe FXCM upwards of $225 million. As a result, it was forced to borrow $300 million from Leucadia National Corp in order to meet its capital requirements.
As a result of the significant amounts clients may owe FXCM for their unpaid margin debt or margin debit balances, FXCM may try to recover the outstanding loan balances from its customers by filing arbitration proceedings to recover these outstanding margin debit balances and margin debts owed to it by their customers.
Trading currencies and engaging in Forex transactions generally carry high degree of risk. The potential risks and rewards of these transactions are amplified by the use of “margin”. Margin is a loan from a brokerage firm like FXCM to its customers, to help “leverage” the value of the currency transactions they place. As a general rule, the more leverage that is employed the greater potential returns an investor or trader may experience based on the amount of capital invested. In other words, the amount of margin may be small relative to the value of the foreign currency purchased. This means that if the market moves with the trader, they may proportionatly larger gain on the funds invested. However, if the market moves against a trader, they may have losses that are greater in proportion to the total amount of money invested. If there is a significant market event, investors and currency traders using margin therefore can not only sustain a total loss of initial margin funds, but may be called upon to pay additional funds to maintain their position (a “margin call”). If the trader or investor does not satisfy the margin call, the brokerage firm may liquidate the trader’s position and will have the right to pursue the trader or investor for the unpaid balance (referred to as a “margin debit” or “margin debt”).
In fact, FXCM’s Client Agreement requires the repayment of these funds. Specifically, Section 41 of the Client Agreement reads: “Without prejudice to FXCM’s right to require payment from Trader in accordance with this Client Agreement, FXCM will have the right at any time to set off: (i) any losses incurred in respect of; or (ii) any debit balances in; or (iii) any commissions or other charges owed by Trader to FXCM in; any accounts (including a joint account and an account held with an affiliated company) in which Trader may have an interest. If any loss or debit balance exceeds all amounts so held, Trader must forthwith pay such excess to FXCM whether demanded or not. Trader also authorises FXCM to set off sums held by FXCM for or to Trader’s credit in a joint account against losses incurred by the joint account holder or commissions or other charges owed to FXCM by the joint account holder. Trader also authorises FXCM to set off: (i) any losses incurred in; or (ii) any debit balances in; or (iii) any commissions or other charges owed by Trader to FXCM in; any account held by trader with FXCM’s affiliated company against any credit on Trader’s account (including a joint account) with FXCM”.
If FXCM seeks repayment of the outstanding margin debit balance or margin debt, it may file an arbitration proceeding to recover the unpaid margin balance. In many cases, these arbitration proceedings are brought in the National Futures Association (NFA) arbitration forum, and may be venued in New York.
If you are subject to an NFA arbitration, certain defenses and offsets may be available to you. These defenses include standard contract defenses such as accord & satisfaction, offsets, payment, discharge in bankruptcy, real party in interest defense, unclean hands, res judicata, statute of limitations, fraud, good faith & fair dealing, mitigation & unfair enrichment, unconscionability, improper venue, as well as other claims or defenses under the Commodities Exchange Act (CEA) or other regulations. However, a skilled NFA arbitration or commodities attorney can help you navigate the NFA arbitration process to help give you the best possible resolution to your margin debt or margin debit arbitration.
If you are an investor or trader that is being sued by FXCM in margin debt or margin debit arbitration or lawsuit, please contact Kons Law Firm at (312) 757-2272 for a FREE, NO OBLIGATION consultation to discuss your legal rights.
Kons Law Firm represents investors nationwide in NFA arbitration and commodities litigation matters. To learn more about the Firm’s securities and commodities litigation and arbitration practice, please visit www.investmentlossattorney.com