Going offshore to escape the CFTC

Broker Discussion Forex Brokers
3017

Next time you talk to Juliet, ask her about this [B]ProfiForex[/B] webpage —

“Market-maker” is a fuzzy term that can be used in various contradictory ways.

B[/B] In one usage of the term — the CFTC’s usage — [B]every retail forex broker[/B] is a market-maker, regardless of what they do with their customers’ trades. In this usage, there are no retail forex [I]brokers;[/I] there are only retail forex [I]dealers.[/I]

B[/B] In another usage of the term “market-maker” — a so-called ECN broker [B]is not[/B] a market-maker, but every other type of broker [B]is[/B] a market-maker.

An ECN broker offers wholesale prices directly to customers (without a retail markup), but adds a commission to the transaction to provide broker profit.

[B]Using this definition, an STP broker is a market-maker.[/B] An STP broker offers [I]retail[/I] (marked-up) prices to retail customers, and then offsets those retail trades by trading upstream at [I]wholesale[/I] prices with the best available liquidity provider.

STP brokers do not run dealing desks, and do not trade against their customers. STP brokers are often referred to as non-dealing-desk (NDD) brokers.

B[/B] In a third usage of the term “market-maker” — only dealing-desk brokers are considered market-makers. All others are identified as NDD, STP or ECN. Most newbie traders think that this third definition of “market-maker” is the only definition.

ProfiForex may be considered a market-maker under definition (2) above.

But, it is entirely correct to classify them as an STP broker.

.

3018

I just finished speaking with Victory from Profiforex, and she assured me that Profiforex is an ECN / STP broker, Juliet’s quote was a mistake. Nothing on the website states that Profiforex is a Market Maker.

3019

Thanks for clarifying guys…

3020

I am referring to post #2827 by ‘irongoose’…sorry for the ambiguity!

3021

Thank you for your courteous reply! If it was something I could have answered I would have been happy do so… even if it was not directed toward me. :slight_smile:

3022

[U]More on forex taxes[/U] —

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Thursday, April 9, 2015
4:15 pm (NY time)

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.

3023

This webinar is extremely informative and will detail exactly how to treat your forex tax obligations…Its where i got my tax strategy for 2014.:21:

3024

Clint, thanks for the info. I’m sure it will provide exactly the information I have been looking for.

3026

In the past I have used GreenTrader to prepare my US tax return to whittle down as low as possible taxes on my trading profits. They charged me about $ 600 which is or was their minimum fee. They stay informed about the latest ingenious legal maneuvers and strategies to keep your taxes low. Using a professional accounting firm to do your taxes also means the IRS is less likely to audit you.

So, if you’re looking for a top rated tax preparer specializing in trading profits, I strongly recommend GreenTrader.

3027

I’ve just came across more evidence of the U.S. Government continuing their attack on us American traders and any other Americans that has investments overseas. Click the link below to read the article:

http://finance.yahoo.com/news/irs-favorite-people-audit-133452472.html?soc_src=mail&soc_trk=ma

3028

Another reason to trade FOREX offshore…

Remember those negative account balance protections frequently touted by brokers such as FXCM, OANDA and others? Apparently, those protections have just been eviscerated in the USA by our friends at the CFTC. Citing the Code of Federal Regulations (CFR) Paragraph 5.16, FXCM recently updated their Client Agreement to read:

“Negative Balance Policy - Traders shall at all times be liable to FXCM for any negative balance or debit balance in Trader’s account(s).”

Indeed, CFR 5.16 states the following:

[B]"§5.16 Prohibition of guarantees against loss.
(a) No retail foreign exchange dealer, futures commission merchant or introducing broker may in any way represent that it will, with respect to any retail foreign exchange transaction in any account carried by a retail foreign exchange dealer or futures commission merchant for or on behalf of any person:

(1) Guarantee such person against loss;

(2) Limit the loss of such person; or

(3) Not call for or attempt to collect security deposits, margin, or other deposits as established for retail forex customers.

(b) No person may in any way represent that a retail foreign exchange dealer, futures commission merchant or introducing broker will engage in any of the acts or practices described in paragraph (a) of this section.

© This section shall not be construed to prevent a retail foreign exchange dealer, futures commission merchant or introducing broker from assuming or sharing in the losses resulting from an error or mishandling of an order.

(d) This section shall not affect any guarantee entered into prior to October 18, 2010, but this section shall apply to any extension, modification or renewal thereof entered into after such date."[/B]

I’m confused over the timing of this regulation. The notice I received from FXCM implied this was something new from the CFTC, however the “October 18, 2010” reference suggests this was rolled out around the time of the original Dodd-Frank fiasco. Have certain US-based FOREX brokers been ignoring the regulation all this time? I don’t know. Whatever the case, in the future expect no debt forgiveness from US-based FOREX brokers.

In my opinion, this makes trading offshore a safer proposition. Sure, the offshore broker might disappear one day with your account balance. But offshore works both ways. This broker also has exactly zero chance of collecting on negative account balances.

But here in the USA, our FOREX brokers now have the full force of the US Judicial System to help them collect on negative account balances. Most likely the broker will sell the account to a debt collection agency who may send out this guy:

Dog.jpg700×559 39.1 KB

3029

What you just pointed out, Shatners Last Stand, is really excellent. I received the same revised policy notice from FXCM. Anyone who now knows about this new policy of negative balance liability and still continues to foolishly trade foreign currencies with a domestic broker may need to have his [B] head examined[/B].

Many thanks again to Clint for starting and maintaining this forum for offshore traders.

3030

Just when I thought I was out… they pull me back in.:33:

Only not really.

3031

I just want to elaborate a little on why I said what I said in my last comment. Murphy’s Law (if something bad can happen, it will happen, at least eventually) sometimes has a nasty habit of kicking in just when it is least expected. If you trade with a domestic broker which has adopted FXCM’s policy of negative balance liability, and you lose a lot of money (admittedly statistically unlikely) in a freakish series of events beyond your control that you cannot or will not repay, 5 evil consequences may descend upon you.

  1. The broker may sue you resulting in a judgment that can be legally “accelerated” (an armed sheriff’s deputy along with others will gather court listed valuables, including second and third vehicles, from your property within only months of the judgment, to be later auctioned off to the highest bidder, and/or other court listed financial accounts will be seized). Acceleration, though, is probably unlikely. Probably, but it has happened before.

  2. To get rid of the judgment that will include court costs and attorney fees plus compounding interest until paid, if it is huge enough, you may later decide to file bankruptcy. Judgments do not necessarily always permanently expire after 10 or 20 years. They can be repeatedly re-instated later with no time limit.

  3. The judgment and/or bankruptcy will adversely affect your credit, big time.

  4. Your name will be placed on a secret “blacklist” kept current and circulated among some or all domestic foreign currency brokers. That means you will [B]NEVER[/B] be able to trade with them again, unless you repay the money.

  5. Though thankfully quite remote, some squeamish offshore brokers, contemplating voluntarily adopting a similar but perhaps limited liability policy, may somehow acquire a copy of this blacklist or even create one from easily available US public records, and then guess what? You may [B]NEVER[/B] be able to trade again even with those particular foreign brokers too!!

So this new negative balance ([B]UNLIMITED[/B]) liability policy is a real “game changer.”

The above is a discussion of a worst case situation. If a broker pursues such last recourse litigation, especially with a number of vociferous, resentful traders, I think the bad reputation the broker inherits may severely damage or even ruin his brokerage, forcing him out of business. So maybe this new policy will be rescinded eventually or at least be amended drastically later. In my opinion we’re still in the “Wild West” era of the growing foreign currency trading industry.

A good strategy traders can use is the one that some homebuilders use in the volatile up and down homebuilding industry. They keep much to most of their wealth in their big, fancy, expensive homes. Then if they need to file bankruptcy, under US law they get to keep their big homes which they can later sell or borrow on to raise capital to start over building homes again. Traders with big homes can start over again, too, in the same way if they ever need to use the bankruptcy route to shed a big judgment or just raise capital after a rare financial disaster.

3032

has it really been ten days since anyone posted to the thread???:53:

3033

I think compounder gave us a good, well needed scare :45:

3034

Yes, it was either that or everyone received their scare from MY last post. :slight_smile:

(I posted an article link - in post #2847 - showing that the IRS is now specifically targeting Americans to audit if you have investments held overseas. And obviously that includes us forex traders with an overseas account).

3035

Slightly off topic but very relevant for us as US based traders:
I asked about peoples experience with Skrill or Neteller a few pages back but never had any replies. Actual costs for transactions, speed of deposit/withdrawals, any suspicious behavior etc.
There are fees to upload money to Skrill/Net, then fees charged by the Fx company to “deposit” the funds. Then the same process in reverse when withdrawing.
Wire transfers would be my first choice but the fees are very high. My bank charges $35 for international outgoing wires and $25 for incoming. Add in the fees from the Fx company (avg $25) and it costs $50 for every withdrawal. Seems pretty steep vs the 1% fee using Skrill/Net.

3036

Yes, I have been checking my emails to see if this very thing will happen as you surely did bring some good information to light!

3037

From my experience, Neteller does not work for US persons transacting with Forex. I went and opened an account and everything and was told thereafter that they do not allow US persons to do Forex transactions anymore. Can anyone else confirm this? I feel that one person says one thing and another person says something different when I speak to these types of companies. The same thing with PayPal. However, I am quite sure PayPal doesn’t do FX anymore as [B]Tradersway[/B] and [B]AssetsFX[/B] have since removed them.

Skrill seems to be fine though based on my observations. I just got off the phone with them today as I was asking what was wrong with the ACH deposit system. Apparently it is down but they still allow ACH withdrawals. The guy on the phone did not have an ETA for when deposits would be fixed.

I think wire transfers are too expensive for anything less than $5000