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

[forex savior]

The news from Moscow has been grim recently. The fall of the Russian Ruble has policy makers mulling over some scary choices; including the imposition of stringent currency controls which could block customers from withdrawing their funds from Russian based forex brokers.

Russia may float ruble to halt slide

The whole situation is reminiscent of the Asian Currency Crisis of 1998. A full collapse in the Ruble could not only lead to huge losses for any traders who have Ruble denominated accounts but could also destroy banks and brokerages throughout Russia who would be bankrupted when they are unable to pay back dollar denominated loans with worthless Rubles.

It is something that traders who have accounts with Russian based forex brokers (i.e. Broco Company) need to seriously take into consideration.

Russians are already dispensing with the Gallows’ Humor by quoting 19th-century writer Mikhail Saltykov-Shchedrin: "It is not a tragedy when in exchange for a ruble you get half a ruble; the tragedy is when in exchange for a ruble you get a punch in the face."

Well, too many forex traders have gotten punches in the face instead of their money back as I have detailed on this thread (and even as we speak Crown Forex is busy socking their own customers in the chin with the rage of Christian Bale on a movie set:
YouTube - Christian Bale Goes ApeSh#t on Terminator 4 set)

The good news is if you are trading with a broker that offers USD/RUB all I can say is “Buy! Buy! Buy!”

[Sweet Pip]

Hi Forex Saviour,

So what's your take on this new FINRA proposal to reduce forex leverage to 1:1 / 1.5:1?

[forex savior]

Originally Posted by Sweet Pip

Hi Forex Saviour,

So what's your take on this new FINRA proposal to reduce forex leverage to 1:1 / 1.5:1?

My take is that FINRA does not want to regulate forex brokers. So what they are saying is "sure you can offer forex trading. But you can't offer any leverage so why bother offer forex trading at all?"

A lot of forex brokers were trying to get licenses with FINRA because of the low capital requirement. FINRA basically put this rule in place to keep forex brokers out of their club.

[forex savior]

The CFTC has just released their latest net capital figures. The field is narrowing dramatically with the departure of HotSpot, ACM and ODL. Which firm will go next?

http://www.cftc.gov/marketreports/f...rfcms/index.htm

The following firms have net capital below $20 million

Advanced Markets $10,071,000
GFS Forex $12,888,000
Easy Forex $13,094,000
Ikon Royal $14,249,000
MB Trading $14,779,000
I Trade FX $15,254,000
Forex Club $15,982,000
Alpari $17,497,000

The following firms have net capital above $20 million

PFG $27,395,000
CMS Forex $28,021,000
Interbank FX $43,669,000
FX Solutions $44,618,000
GFT Forex $75,215,000
Gain Capital $107,167,000
FXCM $115,260,000
Oanda $169,722,000

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.

[forex savior]

Just when you thought $20 million would be the final line of demarcation for U.S. based forex brokers the National Futures Association has announced that capital requirements will be going even higher:

http://www.nfa.futures.org/news/PDF/...Notc021909.pdf

Subsection (a)(ii) applies to Forex Dealer Members that execute any customer transactions other than by using straight-through processing and that also have liabilities to customers of more than $10 million. Where it applies, the Member’s capital requirement is the minimum capital required by subsection (a)(i) plus 5% of the liabilities over $10 million.

For example, if the minimum capital requirement is $20 million, a Forex Dealer Member that operates a dealing desk and has $208 million in liabilities to customers would be required to maintain adjusted net capital equal to or in excess of $29.9 million.

Forex Dealer Members with over $10 million in customer liabilities are subject to this alternative requirement unless they execute all customer transactions using straight-through processing. Straight-through processing refers to platforms that automatically (without human intervention and without exception) enter into an identical but opposite transaction with another counterparty, creating an offsetting position in the Forex Dealer Member’s own name. A Forex Dealer Member that offers several platforms will be exempt from this requirement only if each platform executes all customer orders using straight-through-processing.

Wow. So unless a forex firm hands off every trade to a bank they have to pay this whopping 5% tax on their customer liabilities. Only a handful of firms offer STP execution. It appears the NFA is trying to encourage more firms to go in that direction.

[o990l6mh]

Originally Posted by forex savior

Just when you thought $20 million would be the final line of demarcation for U.S. based forex brokers the National Futures Association has announced that capital requirements will be going even higher:

http://www.nfa.futures.org/news/PDF/...Notc021909.pdf



Wow. So unless a forex firm hands off every trade to a bank they have to pay this whopping 5% tax on their customer liabilities. Only a handful of firms offer STP execution. It appears the NFA is trying to encourage more firms to go in that direction.

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?

[mp6140]

from the reading, it appears that 5% is an increase in equity and not a tax, if i read the post correctly

mp

Originally Posted by forex savior

Wow. So unless a forex firm hands off every trade to a bank they have to pay this whopping 5% tax on their customer liabilities. Only a handful of firms offer STP execution. It appears the NFA is trying to encourage more firms to go in that direction.

[forex savior]

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.

[forex savior]

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.

Crown Forex - Don't believe the 1 pip spread lure - Forex Trading | MetaTrader Indicators and Expert Advisors

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.

[forex savior]

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.