Are Your Funds Safe? NFA to Shut down small forex fcms

[FXGuy]

I agree with "Forex Savior" on the importance of a well capitilized firm.

And I beleive NFA will increase net cap further to make sure that only well capitilized firms act as counterparties to Forex trades.

however Many investors thought that FXLQ was well capitalized and now they are having trouble withdrawing their funds.... This is an example of how investors need to look at more then just the CFTC financial data when making a decision on which broker to choose.

Trading Forex OTC with any FCM, well capitalized or not involves counterparty credit risk which means that if the FCM goes bankrupt you will not likley recieve you money back. This is true when trading OTC with any FCM in any instrument that is not backed by an exchange.

Obviously on that basis, you want to make sure you firms is well capitalzed if you are trading Off exchange (OTC).

However, In addition to looking at CFTC select data on FCM's excess net capital, I believe it is also very important to look at the reputational and background risk of each firm (i.e. company history, principals background and contributions to the industry, technology advantages, policies, scalabilty issuse, Backup & disaster recovery procedures, regulatory actions, arbitration cases, and fines and /or charges that resulted in penalties from the NFA, etc..) and also to ask your broker how it manages its counter party risk especially within the recent volatile market conditions.






FXguy

[adamzgreat]

however Many investors thought that FXLQ was well capitalized and now they are having trouble withdrawing their funds....

How much did it have?
How much is good?

[forex savior]

Advanced Markets just got nailed for shoddy book keeping. Here is the the NFA's official statement:

NFA fines Charlotte forex firm, Advanced Markets, Inc., and its principals $150,000

January 30, Chicago - National Futures Association (NFA) has ordered Advanced Markets, Inc. (AMI) and its principals, Anthony P. Brocco and Geoffrey Gooch, to jointly pay a fine of $150,000. AMI is a Futures Commission Merchant and a Forex Dealer Member located in Charlotte, North Carolina. The Decision, issued by an NFA Hearing Panel, is based on a Complaint filed in June 2007 and a settlement offer submitted by AMI, Brocco and Gooch.

The Panel found that Brocco and Gooch failed to diligently supervise the firm's financial and recordkeeping activities and the promotional materials used by AMI's unregistered solicitors.

[forex savior]

2007 was a year of change in the forex industry, most of it for the better as some of the seediest firms in the industry were shown the door thanks to the NFA’s capital requirement increase. But 2008 appears to be an even more momentous year of change for the U.S. forex industry. And those changes may not necessarily be for the better.

The Savior has long been an advocate of healthy capitalization in the industry. But the recent legislation set to pass in the Congress should be a cause for serious concern for all forex traders. The last few weeks I have received numerous emails and done some research through helpful links provided on the bulletin boards and have come to the realization that this legislation is not good for the trading public.

Wha? I know, I know. The Savior has been preaching the virtues of high capitalization so in theory he should support increasing capitalization to $20 million right? And in fact at first I was sympathetic to this proposal. But the bottom line is the Savior is also a trader. And as a trader I am worried that by restricting this industry to just a handful of the larger players (FXCM, GFT, Gain, Oanda) that speads will once again widen. Take FXCM for example. Their spreads have been tightening for the past year in response to the increased competition taking place in the marketplace. But what happens if that competition gets eliminated altogether? How does this affect the average trader?

The $5 million rule needed to be put into place. There were too many tiny bucketshops doing serious damage to traders. Even now I still have my suspicions about tiny little outfits like AMIFX who are barely treading water even after the $5 million requirement.

Nevertheless, with the House already passing a law to require that all firms have a minimum $20 million on hand (and who knows what other capital requirements will be imposed upon the industry) the barrier to entry is getting sky high and few firms are going to be able to make the cut. My understanding is that the Senate has not approved the House’s language. So there may still be a chance to stop this law from passing.

Also it appears that introducing brokers are going to be wiped out entirely. There are a bunch of registration requirements that may very well strangle most introducing brokers and put them out of business.

I don’t think people realize just how perilous the situation is. This could all become law in a month’s time. Traders, brokers and medium sized dealers should call their Congressman right away. It seems Congress is only hearing from the regulators, not the general public. As a trader I want a healthy industry with stable, well capitalized firms. But I also want good service and tight spreads. Having only 6 firms in the industry is not going to guarantee either.

[uptick]

Originally Posted by forex savior

2007 was a year of change in the forex industry, most of it for the better as some of the seediest firms in the industry were shown the door thanks to the NFA’s capital requirement increase. But 2008 appears to be an even more momentous year of change for the U.S. forex industry. And those changes may not necessarily be for the better.

The Savior has long been an advocate of healthy capitalization in the industry. But the recent legislation set to pass in the Congress should be a cause for serious concern for all forex traders. The last few weeks I have received numerous emails and done some research through helpful links provided on the bulletin boards and have come to the realization that this legislation is not good for the trading public.

Wha? I know, I know. The Savior has been preaching the virtues of high capitalization so in theory he should support increasing capitalization to $20 million right? And in fact at first I was sympathetic to this proposal. But the bottom line is the Savior is also a trader. And as a trader I am worried that by restricting this industry to just a handful of the larger players (FXCM, GFT, Gain, Oanda) that speads will once again widen. Take FXCM for example. Their spreads have been tightening for the past year in response to the increased competition taking place in the marketplace. But what happens if that competition gets eliminated altogether? How does this affect the average trader?

The $5 million rule needed to be put into place. There were too many tiny bucketshops doing serious damage to traders. Even now I still have my suspicions about tiny little outfits like AMIFX who are barely treading water even after the $5 million requirement.

Nevertheless, with the House already passing a law to require that all firms have a minimum $20 million on hand (and who knows what other capital requirements will be imposed upon the industry) the barrier to entry is getting sky high and few firms are going to be able to make the cut. My understanding is that the Senate has not approved the House’s language. So there may still be a chance to stop this law from passing.

Also it appears that introducing brokers are going to be wiped out entirely. There are a bunch of registration requirements that may very well strangle most introducing brokers and put them out of business.

I don’t think people realize just how perilous the situation is. This could all become law in a month’s time. Traders, brokers and medium sized dealers should call their Congressman right away. It seems Congress is only hearing from the regulators, not the general public. As a trader I want a healthy industry with stable, well capitalized firms. But I also want good service and tight spreads. Having only 6 firms in the industry is not going to guarantee either.

Hey Savior,

You know how it is... it's nothing new. I've been in the business for the past 13 years and regulation is the name of the game. What happened to Refco was a big fiasco and they're just trying to prevent that from happening.

In regards to IB's, they won't be wiped out. Simply more registration will be required similar to what you need to do in the Futures business. You will need to get licensed and setup a CTA and get audited yearly, etc, etc.

Let's see what happens.

Take care.

[jimbospeed]

Originally Posted by forex savior

.

I don’t think people realize just how perilous the situation is. This could all become law in a month’s time. Traders, brokers and medium sized dealers should call their Congressman right away. It seems Congress is only hearing from the regulators, not the general public. As a trader I want a healthy industry with stable, well capitalized firms. But I also want good service and tight spreads. Having only 6 firms in the industry is not going to guarantee either.

I think I realize quite well thank you very much.... 20 Million is chump change for any company with even the most modest bit of substance. IMO, this is great news for the average trader who doesn't want grifters and glad handers out there running shoddy Rip'em good bucket shops with no recourse (or very little)...

Bout times I sayzz....

[uptick]

booyah jiim!

[MWil]

In response to the savior - I too was worried about spreads increasing if there are a few major players.

But what if there's an ECN with over $20 mil, what's the harm with that? That broker is passing along rates as close to real market conditions as possible. Isn't that what we all want? Especially if there's a few major players in the industry with unattractive spreads, then that should provide for a huge ECN opportunity. Now if those ECN's start increasing their commissions and the major players increase their spreads...well I guess, we as traders, will need to think up new trading strategies to try to even out the playing field.

I know FOREX is unregulated, and if the above scenario does play out, is there any regulatory body that can force these firms to give us traders a fair shot and make sure broker's aren't bumping up spreads to pad their pockets? I mean the brokers still have the same agreements with large banks, so a $20 mil rule, surely does not alter the rates broker's receive from banks.

In fact, I would think the $20 mil rule would cause the few big brokers to receive better rates on their currencies and should be passed on along to us, right? Here's what I'm saying - if $20 mil rule shuts out the small players. All the traders with those companies go to the big guys. Big guys then need to accomodate the new traders so they open new larger lines of credit with their banks. Larger lines of credit should mean tighter spreads right?

[uptick]

Originally Posted by MWil

In response to the savior - I too was worried about spreads increasing if there are a few major players.

But what if there's an ECN with over $20 mil, what's the harm with that? That broker is passing along rates as close to real market conditions as possible. Isn't that what we all want? Especially if there's a few major players in the industry with unattractive spreads, then that should provide for a huge ECN opportunity. Now if those ECN's start increasing their commissions and the major players increase their spreads...well I guess, we as traders, will need to think up new trading strategies to try to even out the playing field.

I know FOREX is unregulated, and if the above scenario does play out, is there any regulatory body that can force these firms to give us traders a fair shot and make sure broker's aren't bumping up spreads to pad their pockets? I mean the brokers still have the same agreements with large banks, so a $20 mil rule, surely does not alter the rates broker's receive from banks.

In fact, I would think the $20 mil rule would cause the few big brokers to receive better rates on their currencies and should be passed on along to us, right? Here's what I'm saying - if $20 mil rule shuts out the small players. All the traders with those companies go to the big guys. Big guys then need to accomodate the new traders so they open new larger lines of credit with their banks. Larger lines of credit should mean tighter spreads right?

I believe firms will not suddenly increase rates and spreads. Whomever decides to try that will get nailed and traders will simply transfer their accounts to another firm who will keep their spreads as is or better. It's common business sense.

In regards to "unregulated," the forex market is regulated AND will become more regulated. In my opinion, it will all work itself out for the better.

The futures market went through this exact transition and now commissions for futures are as low as they have ever been. There will always be "bad apples" out there in any market. You still see them in the equity markets, bond markets, futures, etc... you see them in any industry. Just try to stick with the "cream of the crop."

Keep trading and let's make some money

[forex savior]

Should the Congress pass legislation requiring all firms have a minimum net capital requirement of $20 million the following firms will be in danger in the United States:

Advanced Markets $1.3 million
Alpari $6.4 million
Bacera $3.1 million
CMC $2.7 million
CMS $11.4 million
Easy Forex $7 million
Forex Club $4.8 million
Friedberg Mercantile $7.9 million
GFS Futures & Forex $3.6 million
Hotspot $6.1 million
IFX $17.1 million
Ikon $9.1 million
MB Trading $6.6 million
Money Garden $5.3 million
ODL $13 million
PFG $12.8 million

Now, many of these firms have additional capital they can infuse into their firms (particularly foreign firms like IFX and CMC as well as domestic ones like Hotspot.) But many do not. The customers of these firms should take notice, and if you want to keep trading with these firms, take action.