Futures commission merchant (FCM)
Also known as: FCM
Futures commission merchant (FCM): A futures commission merchant (FCM) is a US firm that solicits or accepts orders for futures and related instruments and accepts money or other assets from customers to margin or secure those trades.
What is the role of an FCM in forex?
An FCM is primarily a futures broker, but under US rules it may also act as counterparty to retail forex transactions if it is an NFA member approved for forex. Retail forex counterparties in the US are mainly FCMs and retail foreign exchange dealers (RFEDs): forex regulation.
How does an FCM differ from an introducing broker?
Both solicit or accept customer orders, but an FCM also accepts money or other assets from customers to margin their trades, while an introducing broker does not hold customer funds and passes accounts to an FCM or, for forex, to an RFED. For a trader, this means deposits are held by the FCM or RFED, not by the introducing broker.
Worked example
Illustrative only: a US trader holds a futures account with an FCM that is also approved by NFA for forex. The trader can trade EUR/USD futures on an exchange through the FCM and, in a separate forex account, trade spot EUR/USD with the FCM as counterparty, subject to NFA security deposit rules.
Sources
- Intermediaries, Commodity Futures Trading Commission
- Forex Transactions: Regulatory Guide, National Futures Association
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Related terms
- Retail foreign exchange dealer (RFED)
A retail foreign exchange dealer (RFED) is a US registration category for firms that act, or offer to act, as the counterparty to leveraged off-exchange forex transactions with retail customers.
- Margin
Margin is the money a broker sets aside from your account to keep a leveraged position open. It is collateral, not a fee, and the blocked amount is released when the position closes.