Indeed. This is a very noteworthy move by the NFA. Could it be that this will more or less force some firms to switch from dealing desks to true ECN?
from the reading, it appears that 5% is an increase in equity and not a tax, if i read the post correctly
mp
The dangers of trading in Switzerland were revealed once again as Crown Forex is to be shuttered according to Francesc over at FX Street:
Francesc’s Weblog � Update - FINMA Decision on Crown Forex is to liquidate but not yet effective
Crown was an unregulated Swiss broker and thus their demise is certainly not a surprise. This is always the chance customers take when they open an account with an unregulated broker. Nevertheless, traders need to beware trading with any Swiss brokers unless they have a banking license. Let the corpse of Crown Forex be all the proof you need.
Now that Swiss Regulators have pulled the sheet up over Crown Forex�s rigamortis racked cadaver it is time to ascertain the cause of death. Was it fraud? Was it incompetent management? Was it a complete lack of regulatory oversight? Was it a faulty business model? Or was it all of the above?
A good place to start is a thread that was started over at FX Fisherman by a former customer of Crown Forex in March of 2007, back when Crown Forex was strutting through the snow capped valleys of Switzerland with the ****y assurance that they had the world in the palm of their hand.
Been trading on Crown Forex for some time now, and sure enough, discovered that the old adage “if if it too good to be true, it probably isn’t” holds true once again.
The Lure: One pip spreads on all 7 majors
The Bait: Demo trading with near perfect execution (‘made’ 125k just messing around on demo one session, when the price was bouncing about 15 pips either way… and trading 100 lot orders)
The Hook: Far from instant execution… and even the worst requote system I have seen in my limited broker experience (4 different ones).
The Reel: Even during relatively ‘slow’ markets, my RFQ (request for quote) would take upwards of 10 to 15 SECONDS before execution. Mind you, this is when the price wasn’t moving AT ALL. No, the dealers would sometimes just wait to see if it moved against my request, and fill… or, in my direction, and requote!! Did you hear that? Wait FIFTEEN seconds when the price was stagnant to see which way it would move. If it moved FOR me, requote. If against, instant fill (before I could cancel… which they wouldn’t always allow anyway, in keeping with the above scam)
The Net: Even if at times I would accept the requote, if the market was still moving IN THE DIRECTION I anticipated, I would get subsequent requotes… and again, each time it could literally take 5 or more seconds to ‘see’ if the market was continuing in my direction. For those of you not understanding the implications, allow me to boil it down. The supposed ONE pip spread in effect at times became 7, 8, 10 or MORE pips!!
In the Boat: I even have a screen shot of a requote where they are offering a price TWO pips above even the current market price. Wow, how gullible do those dealers think I am?
Flopping on the bottom of the boat, gasping for air: This may be a naive revelation… many may already suspect or know this to be fact. No matter. My conclusion of this all leads me to believe this: Crown Forex, and I am sure many others out there, are not dealing off your position. Meaning, when you buy, they aren’t selling at the same time. And vice versa. No, since 80 to 90% or more of forex traders quit, go bust, or give a substantial amount of money to the market, I am convinced that the dealers are taking the other side of your position, assuming you don’t know what you are doing and won’t last long any way. Does any one else here see a conflict of interest? Seems to me, your dealer should be on your side, trying to keep you in the game, because in theory they SHOULD be making their money on the spread, high volume, and obviously longtime customers. In fact, I am convinced, that is not the case. They are not on our side, “working” for us so to speak (remember, spot Forex dealing is very competitive, so let’s not forget who the CUSTOMER is!); in fact, quite the opposite.
Our only retaliation? Hurt their business by informing the community of forex traders, thereby reducing the lure of “one pip spread” to the scam that it is. You are better off finding yourself a dealer with quick fills of 2 to 3 pips, than to open an account with Crown Forex, as their spreads effectively are much, much larger than this.
Any firm that is promising a guaranteed one point spread should automatically be written off for suspicion of fraud. It just isn�t possible in the forex market. Something has to give. And in Crown Forex�s case they reneged on their promise by constantly requoting their customers and refusing to allow them to deal on their phantom one point spreads.
But this wasn�t the only fraudulent marketing tactic of Crown Forex. Go to their own website and you can see a variety of bogus promises, such as, �Secured Funds.� Secured Funds? This is a company that hasn�t allowed it customers to withdraw their funds for months! If that is security I hate to see what their idea of �non-secured� funds is.
So in determining cause of death it does appear fraud is one likely cause. But another likely cause is incompetent management and employing a faulty business model. If you are serious about being a long-term forex dealer you simply don�t operate without a legitimate license. Yet, Crown Forex set up its base of operations in the notorious Swiss forex market, which over the years has become a haven for fraud and corporate malfeasance. They were never subject to audits, capital requirements or basic financial standards that other brokers around the world are subject too. This allowed their management team to get sloppy and cut corners, which they are now paying dearly for.
In the end Crown Forex got what it deserved. Sadly, too many innocent customers are being hurt in the process. Once again, traders should beware trading with any firm that doesn�t have a license. In Switzerland, that means a banking license for anyone offering forex. Not a pending license, or a pending application, but AN ACTUAL LICENSE. And right now there are no major Swiss brokers who have actually gotten a banking license to date.
The CFTC has just released their latest net capital figures. AMIFX saw its net capital double. And with their new website it looks like they have gotten an injection of cash from somewhere. Forex Club�s net capital also jumped by over 50%. Our final pool of contestants is beginning to take shape.
http://www.cftc.gov/marketreports/f...rfcms/index.htm
The following firms have net capital below $20 million
MB Trading $15,227,000
Easy Forex $15,544,000
GFS Forex $15,957,000
I Trade FX $16,088,000
Ikkon Royal $16,548,000
Alpari $19,690,000
Advanced Markets $19,873,000
The following firms have net capital above $20 million
Forex Club $22,409,000
PFG $26,005,000
CMS Forex $29,255,000
Interbank FX $39,945,000
FX Solutions $43,785,000
GFT Forex $76,055,000
FXCM $98,456,000
Gain Capital $107,390,000
Oanda $169,501,000
As always conduct your due diligence and make sure the firm you are trading with will be able to comply with the new $20 million capital requirement going into effect in the months ahead.
Disturbing news out of, where else; Switzerland, that the police have raided the offices of Swiss forex broker ACM for possible fraud. You�ll remember ACM fled the U.S. after they failed to come up with enough capital to stay in business. They are trying to get a banking license in Switzerland but to date only have an application pending with Swiss authorities. That application just got a lot more complicated.
Francesc at FX Street has been linking to several articles in the Swiss Press which details the investigation:
Francesc’s Weblog � Police raid ACM Geneva office in a suspected financial fraud case
The main article appeared in Swisster:
Swiss Business in English: Police raid Geneva forex firm in fraud probe
A squad of 28 police officers raided the downtown Geneva offices of currency trading company ACM and seized documents, a computer and other evidence in a suspected financial fraud case. Swisster discovers the unprecedented affair, being directed by an inspector and detective for the cantonal force�s financial fraud brigade, may take weeks to unravel and has involved the questioning of top officials from the company, who are refusing to comment.
28 police officers?! Sounds like the raid that took place at the end of the movie Boiler Room where a swarm of agents falls upon Vin Diesel and company.
In addition, senior officials were questioned by police, although Pulh said no-one has been arrested. A company employee told Swisster that a trader and four of the company�s senior management, including Nicholas Bang, deputy general manager and one of ACM�s founders, were contacted at their homes early Thursday and taken in for questioning.
�We are being told that it has to do with a client from two years ago based in Mexico who had lost a lot of money from the company,� the informant said. �The client was looking for documents to see if there was any misappropriation.�
ACM has countered that this mysterious Mexican plaintiff is just making it all up:
Francesc’s Weblog � ACM Update 1 - ACM feels being victim to former client malicious intent
On Thursday the 2nd of April, on the basis of counterfeit documents produced by a former client, the authorities in Geneva visited ACM�s offices.
Collaborating in a transparent and active way, ACM delivered all information required.
All elements prove ACM�s good faith and it remains clear that the company has fallen victim to a former client bent on malicious intent.In return, ACM has lodged a complaint against this former client with accusations of blackmail, defamation and forgery of documents.
Another newspaper article that Francesc links to then goes on to explain that the Mexican plaintiff was tipped off by an ex-ACM employee about some bad pricing or something from the summer of 2008. ACM insists this rogue employee gave the Mexicans false statements which the plaintiff then used to blackmail ACM?
What a mess. Not sure who to believe here. But I can�t imagine that 28 police officers would storm a business, seize computers and files, and interrogate management- all on the hearsay of one disgruntled foreigner.
Stay tuned, we may have another Crown Forex on our hands.
I�ve said it before, I�ll say it again, do not trade with a Swiss broker UNLESS they have a banking license!
The CFTC has just released their latest net capital figures. For the most part it is the same as last month�s report.
http://www.cftc.gov/marketreports/f...rfcms/index.htm
The following firms have net capital below $20 million
Easy Forex $15,267,000
MB Trading $15,449,000
GFS Forex $16,008,000
Ikkon Royal $16,310,000
I Trade FX $16,811,000
Alpari $19,563,000
Advanced Markets $19,779,000
The following firms have net capital above $20 million
Forex Club $21,536,000
PFG $26,053,000
CMS Forex $29,132,000
Interbank FX $37,816,000
FX Solutions $49,298,000
GFT Forex $84,505,000
FXCM $101,546,000
Gain Capital $105,049,000
Oanda $169,205,000
As always conduct your due diligence and make sure the firm you are trading with will be able to comply with the new $20 million capital requirement going into effect in the months ahead.
The NFA has announced that two new rules have been approved by the CFTC and will take effect in the next two months.
National Futures Association | News Center
Rule Number One is the bad news as it bans the practice of �hedging.�
New Compliance Rule 2-43(b) requires an FDM to offset positions in a customer account on a first-in, first-out basis, thereby prohibiting a trading practice commonly referred to as “hedging.” A customer may, however, direct the FDM to offset same-size transactions even if there are older transactions of a different size. Rule 2-43(b) is effective for any positions established after May 15, 2009. Offsetting positions that were established prior to the effective date do not have to be liquidated, but once either position is closed out after May 15, it may not be reestablished as a hedge.
Rule number two is the good news, as it severely restricts a forex dealer from adjusting prices after an order has been executed.
For orders executed after June 12, 2009, Compliance Rule 2-43(a) will prohibit an FDM from adjusting executed customer orders, with two exceptions. The first exception is where the adjustment is done to settle a customer complaint in favor of the customer. The second exception is where an FDM exclusively operates a “straight-through processing” model and the liquidity provider with which it entered into the automatic offsetting position changes the price of an executed order with the FDM.
Pursuant to the new rule, an FDM that adjusts an executed customer order based on an adjustment by a liquidity provider must provide notice to the affected customer within fifteen minutes of the customer order being executed. The notice must state that the FDM intends to cancel or adjust the order and must include documentation of the price adjustment from the liquidity provider. The FDM must either cancel or adjust all customer orders executed during the same time period and in the same currency pair or option regardless of whether they were buy or sell orders.
All cancellations or adjustments of executed customer orders must be reviewed and approved by a listed principal of the FDM who is also an associated person. Such review must be in writing and include the documentation from the liquidity provider, and the written review and documentation must be provided to NFA at <[email protected]>. Finally, any FDM that may elect to cancel or adjust executed customer orders based upon liquidity provider price changes must provide customers with written notice of that fact prior to the time they first engage in forex transactions.
The second rule is a huge boon to the trading public. No longer will brokers be able to just cancel winning trades from customers because of supposed �price spikes� while simultaneously allowing losing trades to get booked on those same spikes.
Over all, this is a net positive for the trading public. While the hedging rule is heavy handed, customers can always open two accounts and just go long and short in each one. But the price adjustment rule more than makes up for that. Kudos to the NFA.
All - trying to understand the impact of the new captial requirements. Does this mean that all of the firms with net capital below $20 million will stop operating?
Short answer: yes
From what I have been reading at some Forex websites and in some magazines, the actual requirement will be a [B]minimum[/B] of $20 Mill with a need for excess as a cushion.
Most experts on the subject are saying $30 Mill is going to be the ‘real’ requirement necessary to operate long term.
Lots of news to cover with I Trade FX being fined, Crown Forex in a knock down drag out fight with clueless Swiss regulators and the next cap requirement set to kick in. More on these topics in the days to come�
But I�ve been doing a lot of reading about this hedging rule on the bulletin boards and it appears this rule could be far more consequential than originally thought.
First of all let�s look at the language in the NFA rule itself:
National Futures Association | News Center
New Compliance Rule 2-43(b) requires an FDM to offset positions in a customer account on a first-in, first-out basis, thereby prohibiting a trading practice commonly referred to as “hedging.”
�First in, First out� is not a concept that comes into play all that often in forex trading. Traders can hold multiple positions in the same currency pair and close any of those positions at any time in any order they like. Is NFA now saying that traders can no longer do this? Is the NFA rule not only intended to ban hedging, but to completely make over the manner in which traders can open and close their positions? If so that�s pretty big news. I checked in with a couple brokers and they are tight lipped at the moment as they are still waiting for guidance from the NFA itself.
The deadline to convert to a no-hedging platform is June 12.
Developing�
…aka [B]“FIFO”[/B] is a common method for recording the value of inventory for accounting purposes…
I wonder if brokers can skirt the hedging ban by offering a “One Cancels the Other” style trade; a trader sets up a Buy Stop and a Sell Stop (aka a straddle) and then when one is hit the other is cancelled. Not in the spirit of the new regulation but perhaps legal? d.
The new hedging rule, which is set to kick in on May 15, (the June 12 date is when grandfathered orders must be closed as well), is even more complicated than first thought.
First, Back Bay FX, an introducing broker to several of the big forex dealers, is confirming that FIFO will be the new order of the day:
Forex Factory - View Single Post - NFA New Rule Not allowing stop and limit orders
Hi All,
As part of our due diligence on the NFA’s “anti-hedging” rule from April 13 (NFA rule 2.43(b)), we have been informed of a follow up or clarification from the NFA. We have not been able to get the NFA to confirm or deny, but we have heard from multiple independent sources.
The NFA has informed the clearing firms that they will need to use First In-First Out (FIFO) accounting for retail traders. This has an important effect on all traders, but specifically MetaTrader4 users!!
FIFO accounting means that if a trader has a position in a currency pair that was formed by the combination of two orders, when the trader goes to close out a portion of that position, the first order in will have to be the first order closed. HUH? Here is an example of the new ruling:
Trader bought 100,000 EUR/USD this morning (call it the morning trade), and bought another 100,000 this afternoon (call it the afternoon trade). So the total position is 200,000 EUR/USD. When the trader chooses to close part of his position by selling 100,000 EUR/USD…the trader must close the morning trade. He/She can not close the afternoon trade before the morning trade. Sooooooo…
This ruling will significantly affect the use of Stop Loss and Limit Orders on open positions. Think of it…in the above example, you would not be able to put a Take Profit order on your afternoon trade until/unless you had closed the morning trade; the closing order of the open trades must be FIFO! Without some complicated changes being made to the coding of the retail FX platforms, the clearing firms will have to eliminate the use of Stops and Limits.
This clarification (once confirmed) will effect almost all trading styles, but specifically effect the following strategies:
- Martingale
- Grid Trading
- One Cancels Other (OCO) orders
Please note that the above is in addition to the main part of rule 2.43(b) which eliminates hedging for retail traders.
Francesc at FX Street received the same information this morning from an executive at another fx dealer:
Francesc’s Weblog � NFA - Not allowing stop and limit orders
An important executive of the Retail Forex industry just informed me that the NFA will not be allowing stop and limit orders on open positions either, as this conflicts with their FIFO - first-in, first-out - new policy. This goes into effect may 17th.
This is bound to rock the U.S. retail industry and send customers packing in droves. How can the NFA ban this critical risk management tool? Trading without a stop is like driving in a demolition derby without a seat belt. Traders should follow this news very closely and if it turns out to be true start researching brokers that have offices in the U.K.
Correct me if I’ve misunderstood, but as far as MT4 goes, “stop” orders are just another type of “pending” order… like “limit” orders are. I don’t think they mean you can’t put a stoploss on an order 
i do not understand this please
This is quite disturbing news.
If true, I will likely pack my things and head off to the UK
Disturbing indeed. If things turn out to be so you guys can switch to forex.com, heres an email from them:
Dear Client:
We’re committed to providing you with the tools you need to execute your trading strategies. Beginning May 15, 2009, all MetaTrader accounts will be serviced by FOREX.com UK Ltd., which is authorized and regulated by the Financial Services Authority (FSA).
This change will allow us to continue to support all MetaTrader accounts, including those customers who currently use hedging as part of their trading strategy. As a FOREX.com UK customer, you will still benefit from the same level of stability and superior customer service you have come to expect.
The transfer of your account will be a seamless process. Within the next few days, you will receive another email with specific instructions regarding the account transfer process. In the meantime, please feel free to contact a forex representative with any additional questions or concerns.
Thank you in advance for your continued business.
Sincerely,
The Team at FOREX.com
Looks like I Trade FX is throwing in the towel. With the NFA fining them $250,000 over the Olint affair and the $20 million capital requirement set to kick in I Trade FX is officially calling it quits: FXCM Acquires Clients of i-Trade FX
New York―May 4, 2009―Forex Capital Markets LLC (Forex | currency trading | forex trading | forex broker) today announced it has reached an agreement to acquire the U.S. and international retail forex clients of i-Trade FX. Subject to regulatory approval, accounts are expected to be transferred from i-Trade FX to FXCM on May 8, 2009. Like several other forex firms, i-Trade FX has decided to cease offering service to US retail clients. Other firms that have decided to exit the U.S. retail business include ODL Securities, Hotspot FX, and CMC Markets. To offer retail forex trading services under NFA rules, Forex Dealer Members (FDMs) will be required to have a minimum of $20 Million in firm capital as of May 16, 2009.
The U.S. industry consolidation should continue in the months to come as cap increases and a battery of new regulations continue to squeeze the market.
Next up, CFTC Net Capital report for March.