The recent shutdown of My Forex Funds by both U.S. and Canadian regulatory authorities has sent shockwaves through the proprietary trading sector, leaving many traders as well as stakeholders pondering the wider implications of this situation for the broader prop trading industry. Essentially, this development places the prop trading industry, and its profits, squarely in the crosshairs of the CFTC and Canadian regulators. Consequently, the landscape is poised to become more challenging for this type of firm, potentially leading to more of them facing exclusion from U.S. markets.
Indeed, a close examination of the exhaustive CFTC brief uncovers concerning implications for My Forex Funds and the entire proprietary trading industry. While some allegations are directed specifically at My Forex Funds and Traders Global's actions, others encompass practices that could potentially implicate numerous prop trading firms.
Recognizing the buzz around the trend of prop trading and having written extensively on the matter here at SBO, even featuring My Forex Funds as a key industry player, we feel obliged to outline the key reasons provided by the US regulator CFTC for intervening and effectively shutting down My Forex Funds. We would, however, urge all prop traders, especially those trading through My Forex Funds to read the full text of the CFTC notice on the matter to have the complete picture in mind and be able to draw their own conclusions or even plan their course ahead by perhaps seeking the pertinent legal advice.
As always, any views aired here are the insights and opinions of resident experts and team members, but in no way do they constitute legal advice. Moreover, the My Forex Funds case is still in its initial stages and no final, official verdict has been handed out yet. In fact, in its announcement carried out on its website, My Forex Funds tries to put on a brave face and imply that there might be a way out and a solution in sight, once it discusses the matter with regulators.
The message inter alia states that “We will be reaching out to the regulators to discuss their concerns, and the first court date to determine whether the freeze orders should be lifted or modified is currently scheduled for September 11 in the US, with another hearing later that same week in Canada. We hope to have this matter resolved as soon as possible and will update this message as events occur.”
Chances are that the cited first court date of 9/11/23 will just be the first episode of an ongoing serial that might drag on for a long time. In any case, the situation could well unfold in various different ways, with My Forex Funds being called to pay fines and implement operational changes to be allowed to resume its operations, while the imposition of a complete shutdown in the U.S. is also a highly likely outcome. What is certain is that any kind of swift resolution is highly unlikely and we can understand how frustrating this situation is for all My Forex Funds clients anticipating to receive their payouts.
As previously discussed on several occasions, prop firms are admittedly in a grey area of regulation and the forceful intervention of regulators in the operations of one of the most popular prop firms has justifiably created a cloud of uncertainty that is hovering over prop traders. What time development may signify is that it is high time for prop traders, as well as prop firms alike to consider alternative plans, to change, evolve, and adapt through the adoption of survival strategies. But to do so, it is necessary to analyze and understand both the gist and the nature of the CFTC allegations against My Forex Funds.
According to the claims on the CFTC document, from November 2021 onwards, Traders Global Group, also known as My Forex Funds, served over 135,000 customers. Out of these, only 24,000 had live accounts, indicating that merely 17% of traders actually managed to pass the challenges. Shockingly, fewer than 100 executed trades through Straight Through Processing (STP)!
As per the CFTC findings, during this same period, My Forex Funds accumulated $310 million in fees and $172 million in net income. The primary allegations against the firm revolve around the CFTC's belief that My Forex Funds misled customers about their profit-sharing model. They argue that rather than profiting when customers succeed, Traders Global actually loses money when customers do well. Remarkably, the CFTC even likened Traders Global's operations to a Ponzi scheme.
This is a contentious issue within the industry because many prop firms use fees from other traders to pay successful ones who haven't yet passed through the STP stage and the approach adopted by the U.S., regulator on this matter might well mean trouble for other prop firms as well, especially those not adhering to the principles of a genuine prop desk model.
As outlined in the relevant document, the CFTC felt compelled to proceed with shutting down My Forex Funds as the company is allegedly accused of the following wrongdoings and fraudulent activities:
Perhaps the most disturbing piece of information contained in the CFTC document is the communications between an employee of the prop firm and a third-party technology advisor, who were reported to be discussing ways and strategies to adopt in order to reduce the profits of successful traders. This revelation is sure to have hurt, upset, and infuriated all the My Forex Funds clients, while also outlining and highlighting once again the great risks associated with prop trading. And while one bad apple doesn’t mean we should throw away the entire basket, it is surely important that prop-funded traders should take active measures to protect themselves.
Such risk-mitigating precautions could include:
Of course, the most crucial decision made by prop traders is wisely choosing their prop firm or firms and preferring firms that not only talk the talk but also walk the walk when it comes to being truly transparent. At SBO we strive to keep updated lists of verified and trusted prop firms, which you may consult at any time.
When evaluating the risk associated with trading with a prop trading firm, several key factors should be considered including the firm's regulatory status, track record, industry reputation, and level of transparency. For more details on each principle, please read our safe and trustworthy Prop Firms guide.
The CFTC has issued several customer protection Fraud Advisories and Articles that provide information on how customers can detect, avoid, and report scams. The CFTC also strongly urges traders before committing funds to verify the company’s registration status using NFA BASIC.
Customers and individuals are encouraged to report suspicious activities or information, such as potential violations of commodity trading laws, to the Division of Enforcement via a toll-free hotline at 866-FON-CFTC (866-366-2382), file a complaint online, or contact the Whistleblower Office.
We are on a mission to change the prop industry for the better
Moreover, as a prop trader, it would be interesting to observe the reaction of other prop trading firms to the My Forex Funds saga. Many have proven their swift reflexes and have already reached out to clients in order to address their concerns. One such example is the FunderPro CEO, who was quick to clarify through an email:
“FunderPro is not at risk of being shut down for four main reasons:
In addition to the facts above, we have a proven track record of full transparency, community involvement, and openness to implement new features based on user feedback. It’s no secret that we are on a mission to change the prop industry for the better, starting by offering a true prop desk model while adhering to all the latest regulations.”
Such pledges and statements give room and reason for hope that despite the challenges and the evolving landscape, especially when it comes to regulatory oversight, the prop trading industry still carries a high thriving potential provided the current needs to adapt are effectively met and decisions are taken with the right amount of vigilance and prudence.
In the immediate aftermath of the My Forex Funds clampdown, numerous prop trading entities are now asserting that they are headquartered and legally established in nations with less stringent regulations. Consequently, a noticeable trend may emerge as more prop firms explore the establishment of auxiliary offices abroad, relocating their operations to evade the issues that ensnared My Forex Funds. In the process, some of these prop trading firms might experience a decline in profitability as they hasten to discontinue certain practices that have come under scrutiny.
In essence, the prop trading industry appears to be embarking on an extended journey filled with regulatory challenges. It doesn't signify the industry's demise, but rather that it has garnered the attention of vigilant regulators. Expect to hear more about this as it unfolds, all in the interest of safeguarding consumers. This heightened oversight should encourage greater transparency and integrity among prop trading firms, both those already adhering to such standards and those in need of improvement.
Ultimately, this development is expected to yield benefits for customers and traders alike, ushering in a new era where regulatory scrutiny becomes a standard practice. The prop trading sector has witnessed exponential growth in recent years, and it's now undergoing a necessary phase of regulation. The unfolding narrative will reveal how it all pans out, but our sincere hope is that prop firms will realize that they must prioritize fairness and transparency for the benefit of all traders and that those who do so will be preferred and rewarded.
|Prop Firm||Regulatory authority: Financial Instruments Directive (MiFID)|
|FTMO||Prague (Czech Republic)|
|E8 Funding||Texas (USA) and the Czech Republic|
|FidelCrest||Cyprus and Estonia|
|The Trading Pit||Liechtenstein|
|Prop Firm||Regulatory authority: Financial Conduct Authority (FCA)|
|FundedNext||UAE, USA, UK, and Bangladesh|
|City Traders Imperium||London (UK)|
|Lux Trading Firm||London (UK) and Bratislava|
|Prop Firm||Regulatory authority: Commodity Futures Trading Commission (CFTC) & Canadian financial regulatory authority (IIROC)|
|Toptier Trader||Delaware (USA)|
|My Forex Funds||Toronto (Canada)|
|FundedNext||UAE, USA, UK, and Bangladesh|
|E8 Funding||Texas (USA) and the Czech Republic|
In a surprising turn of events, My Forex Funds, a distinguished name in the world of proprietary trading, has found itself facing unexpected regulatory hurdles. In the early hours of September 1st, reports emerged regarding the temporary suspension ... [show/hide]
Friday 01 September, 2023
Introduction In late August, the Forex trading world was shaken when U.S. and Canadian regulators shut down My Forex Funds, a prominent and vastly popular Forex ...