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

Broker Discussion Forex Brokers
373

The importance of this can’t be overstated. Yet I think very many traders, newbies in particular, will be completely surprised by their brokers closing up shop.

Maybe something to include in the babypips school, or perhaps put a sticky post on the newbie section.

To me, it seems that a lot of newbies are just looking at the shiny parts when choosing a broker and not at the important things, like ability to comply with financial requirements coming soon.

Much praise to you, forex savior, for your generous efforts in increasing awareness!

374

I’ve heard alpari us has closed for lack of liquidity, does anyboy know something about that? That really worries me, since some of them have just suddenly closed. I had to call my broker to make sure they won’t lol.

375

Francesc at FX Street is reporting that the SFBC investigation of Crown Forex continues and that customers still can�t withdraw their funds. However, it appears the blockade may be lifted in a few weeks time.

Francesc’s Weblog � Update - Crown Forex investigation… still weeks to go

As I know many of you are highly concerned for the sake of your money at Crown Forex as the firm is currently under SFBC (Swiss Federal Banking Commission) investigation, I�m trying to be in close contact with management at Crown Forex and SFBC in order to keep you as best updated as possible.

Today, I got a phone call from SFBC. My counterpart was not able to confirm me when the investigation will end but from our conversation I got the feeling that we are not far from it.

I had been previously told that we could see the end during this week but it seems that the investigation will still last for some more weeks.

What I do get a confirmation is that it is totally true that SFBC does not allow traders to withdraw their money till the investigation will finish. To get this confirmation from SFBC is definitely a relief for me and I hope it is for many of you.

This is what can happen to you if you trade with an unregulated broker. Beware Swiss brokers that do not have a banking license.

376

this one caught my eye simply because of “swiss” and “crown”, but should include “interbankfx” also.

NEVER in my use of brokers have i run into two more unsavory companies — crown used to consider you a “scalper” if you made two trades for six pips or less within a day or two day period, and then stop you from trading, while Interbank NEVER hits the correct price with their price — NOT even close !

it once got me so angry that i pulled a rant on all the sites i could find, as this was NO demo, but someone elses real account who was in trouble, and hard as it is to straighten out a bad account, crown and interbank made it doubly hard !

hope everyone gets their money and they the brokers get hung by their you know whats cause chocolate and cukoo clocks aint what the swiss are famous for — they are famous for being the biggest banking cheats in the world, and im SO glad there are new offshore banking that may just put the country out of business.

Switzerland is famous for its nuetrality, which translates into "we lend money to ANY ONE — dictator or not — all we care about is the money !

sorrry, but i truly hate these worms !

mp

377

About Interbank, I might also add that it’s kind of annoying that they open their markets when they do. This creates a sunday candle that represents just a couple of hours and basically it will just screw with indicators.

This was enough for me to choose not to go with Interbank. It’s surprisingly hard to find a good broker among the regulated ones. Hopefully swiss banking licenses, tougher NFA and CFTC regulation etc will move things in the right direction. But that will surely come at a cost, such as decreased competition in the business.

378

Thanks I’m looking for broker for live soon but never see this thread. Very helpful if we can sticky this in newbie so they just like me know who to look for.

WT.

379

Last year Rosenthal Collins bought MG Forex just as the first capital requirement was set to kick in. RCG then announced that MG Forex was a subsidiary of Rosenthal Collins Securities, which is regulated by FINRA, not the NFA. Thus MG Forex was able to avoid the $20 million capital requirement since FINRA members need only $250,000 in capital.

That was then.

Last week FINRA released a proposal capping the margin level that forex brokers can offer at 1.5 to 1. Essentially, FINRA is saying you can�t trade forex on margin.

FINRA - Regulatory Notice 09-06

The rule will not effect NFA registered forex brokers. But for those forex brokers with FINRA licenses the party appears to be over. Why is FINRA doing this?

FINRA has observed a potential migration of retail forex activity from the FCM channel to Broker Dealers�

Hmmm, couldn�t be that forex dealers who didn�t have the capital to keep their NFA licenses were suddenly showing up to get a broker dealer license on the cheap? Well, if that was the case consider that escape hatch to be boarded up.

What will MG Forex do now?

380

Yet another small forex dealer is getting out of the U.S. market. HotSpot FXr is closing down their retail fx business and selling their customers to FXCM. This would be the third forex dealer that FXCM has feasted on this month.

FXCM Acquires Certain Assets of Hotspot FXr�s Retail Forex Business

The consolidation of the retail fx industry in the U.S. has dramatically accelerated in the last few weeks with ACM, ODL and now HotSpot departing.

HotSpot�s case is particularly interesting. They are owned by Knight Capital which certainly has plenty of cash to meet the $20 million requirement. But apparently their retail business isn�t large enough to justify their continuing operation.

Again, this is why a firm�s net capital number is so important. Many thought that because HotSpot was owned by Knight they didn�t need to report a lot of capital. But it turns out that Knight was not willing to fork over the money needed to keep Hotspot FXr a going concern. At the end of the day, HotSpot�s net capital number was a spot on indicator of the firm�s viability. Taking nothing else into consideration, their number gave off the impression of a firm struggling to stay afloat. So in the end is it really a surprise that their retail business sank to the bottom of the ocean?

Once again, traders should be aware of the risks you take by trading with a forex broker with net capital below $20 million. As we are seeing smaller forex brokers are liable to close up shop giving their customers very little notice. Here today, gone tomorrow.

Or in HotSpot�s case, gone in two weeks time�

382

As we await the next CFTC Net Capital Report I thought I�d post some of the best trader thread titles I�ve seen on the Net�. Many an angry trader loves to lash out at their broker or adviser and there are some pretty humorous, if not over the top, thread titles detailing the woes and eccentricities of the retail fx trading public. Here are some of my favorites:

1. �GFT Forex � Nazi Paradise�
Forums - GFT Forex - Nazi Paradise.

Apparently, the creator of this thread, �IShopAtPublix� has never heard of �Godwin�s Law,� which states that invoking Hitler or the Nazis in an analogy serves to discredit the person who is injecting Der Fuhrer into the conversation. So why was this trader calling out GFT for being jackbooted storm troopers? Because they asked him for a photocopy of his credit card�

�Vee Hav Vays of Making you Talk!�

2. �FX Open Scam Scum�
FXOPEN SCAM SCUM - Page 9

Months ago I wrote about a broker war between FX Open and Poltek FX. Forex Forum - FXstreet.com - View Single Post - NFA Forex Dealer Dead Pool

Sadly, a tentative cease fire has appeared thus robbing the trading public of one of the most entertaining flame wars on the Internet.

Hot on the heels of this truce comes another �Peace in our Time� declaration as thread creator �Maxey� announces that he has gotten his long awaited payout of $70,000 from FX Open thus bringing a close to the volatile �Scam Scum� thread at Forex Factory.

3. �Felix with a Criminal Record (Forex Peace Army Under Government Investigation)�
T2W Day Trading & Forex Forums

The last year and a half has seen Felix Homogratus� Peace Army under heavy scrutiny on various fly by night blogs and all over the bulletin boards. This is but one of the innumerable threads where the Peace Army does battle against its critics. In this one �Tom Harris� can be found ranting about the Peace Army being under government investigation. Mind you, no proof of such an investigation is ever presented but we are reminded that Forex Bastard�s girlfriend was thrown in the clink a year ago.

If you like the �paranoid style� this thread is for you.

4. �Patrict Sim�s (ExpertForextrader) Failed Arbitrage Strategy � Professional Scammer�
Patrick Sim’s (ExpertForextrader) Failed Arbitrage Strategy - Professional SCAMMER

TalkGold is one of my favorite forums and has more threads than you can shake a stick at. Granted, many of the threads are from shameless marketers selling every forex related product under the sun, but that�s what makes the forum so interesting. It is a total free for all and gives traders a wonderful bird�s eye view of the utter chaos that is the retail forex market.

In this thread a trader by the name of �patricksimbastard� excoriates the real Patrick Sim whose trading signals �patricksimbastard� doesn�t seem to care for:

Please be informed that �expertforextrader� is a scammer. He is based in singapore and he has been soliciting funds from investors with his failed bogus strategy. I’m a one of his victims. Here are his deeds and all the amounts discussed were in SGD. All these were under the pretense of using his so called arbitrage forex strategy which serve to fail.

“Expertforextrader” is no expert but a professional clown. He is a 58year old (as of 2009) BANKRUPT man who went bankrupt because mere credit card banks initiated by the bank of amt $20,000. He used to be a former Singapore Airlines Co-Pilot and was sacked as a result of his neglience in flight as just like his attitudes towards his boo hoo forex stategies.

I like the �professional clown� appellate. So does patricksimbastard have a case? Don�t know, but whenever I see someone claiming to have a �Holy Grail� forex trading system as Patrick Sim claims to have I make it my business to stay as far away from such �experts� as I can. Patricksimbastard should have done the same.

5. �Oanda- Add Your Scam Screens Here�
Forums - Oanda - Add Your SCAM SCREENS Here

81 pages and still going strong. What has Oanda done to deserve such disrespect? Well, nothing. At least nothing out of the ordinary. Bad fills are a dime a dozen in retail forex, especially if the broker you trade with is a market maker taking the other side of the trade. Yet that doesn�t stop traders like �forestgril� from declaring jihad after they get a bad fill and taking to the bulletin boards to declare a fatwa on their broker. Another poster on this thread sums up �Forestgril�s� situation perfectly:

Forums - Oanda - Add Your SCAM SCREENS Here

Why are you still using Oanda if they are costing you money? You have been pissing and moaning about them since the beginning of March with their executions and phantom prices, etc.

Why do you still use them? Why have you not found a “better” broker for your trading style rather than stay with the same group that causes you such fits? If you come back here next month at NFP with the same complaints than you have no one to blame but yourself. It only takes a week (at most) to set up an account somewhere else.

Ah but nothing beats blaming your lousy trading on those rascally brokers does it? In any case Forestgril will not be denied:

I will switch to another broker, but first I will beat them and get my lost money back. It is unreasonable, but I want them to see, that all in all - my account was not profitable to them. For my satisfaction - I will get from them twice the sum, that I have lost, and then - get out.

Well, the best of luck to you Forestgril. You have your work cut out for you- as do all the disgruntled traders of fx world.

383

Sources are telling Jamaican media outlets that David Smith�s infamous investment scheme has only $10 million in local cash on hand. In short, it has become clear that David Smith is the Bernie Madoff of Jamaica, with the exception that Smith�s Ponzi Scheme is doing far more damage to the local economy: Welcome to the Jamaica Herald Online

Although banker/client confidentiality prevents the Michael Lee Chin controlled National Commercial Bank of Jamaica (NCBJ) from disclosing details of its relationship with clients, highly placed sources say that the David Smith, led Olint Corporation only has US$3 million in its local accounts and about $7 million in those in the Turks and Caicos Islands.

Speculation has been rife as to how much money is in the company�s local accounts, since NCBJ got the go ahead from the Privy Council to close the renegade foreign exchange dealer�s accounts. Olint reportedly owes cash strapped investors some US$100 million. The company�s inability or unwillingness to pay investors since the end of the year 2007 has been having a negative impact on the construction and real estate, automobile as well as retail sectors.

Meanwhile, the NFA has yet to issue a ruling in regards to its complaint against I Trade FX: Forex Forum - FXstreet.com - View Single Post - NFA Forex Dealer Dead Pool

Smith was a formal principal at I Trade FX and while the NFA is not investigating Smith himself a ruling by the NFA could help clear up exactly what Smith has been doing with his customer�s funds all these years.

Hopefully, regulators have this case at the top of their �to do� list. It is far too important for them not to.

384

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!�

385

Hi Forex Saviour,

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

:confused:

PDFCB.pdf (75.9 KB)

386

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.

387

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.

388

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:

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.

389

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?

390

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

mp

391

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.

392

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.

393

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.