• Home ::
• Fundamental ::
• Analysis Reports ::
• The Brokers (re) Evolution: Live Webinar

• Send
• Print
• Add To

The Brokers (re) Evolution: Live Webinar

Thu, Sep 13 2007, 10:58 GMT
by Tony Juste

FXstreet.com

A little bit of history

• Retail Forex Firms - since the 90’s
• Initial Capital Requirement  $250,000
• Treated as FCM (Futures Commission Merchant)
• Although they fell under NFA’s supervision, the 90’s and early 00’s saw many bad practices by FX Firms - scams

First Steps to Improve the System

• Due to the large number of complaints on bad practice, the NFA decided to reduce the ‘immunity’ of the FX Firms (‘immunity’ based on the fact that the Forex is not an exchangetraded market)
• First measures included better vigilance of accounting and trading practices (keeping book of trades, financial status, etc…)

First steps were not enough

• The steps to improve Firms’ credibility was not enough, as the scam and manipulation cases continued to grow.

NFA’s second –important- step

• In January, 2007, the NFA raised the’affiliation capital’ for FX Firms to $1M.
• That is, 4 times the previous amount.
• Further, an improved control of the financial status and trading books of companies was to be implemented.
• But apparently taht was not enough to prevent scammers and fraudulent firms from doing ‘business’.

The 3rd step(?) – Aimed at erradicating bad practices

• ‘Affiliation Capital’ (AC) raised to $5M
• FX Firms will be named as FDMs = Forex Dealer Members (New Category)  qualitative step
• In Addition, firms will need to cover 10-15% of customers’ funds, and that will be part of the ‘AC’ in an ongoing basis. The more the clients, the more the money needed. Some firms qill be required to have at least $9- 10M in AC to pass on the regulation.
• More strict accounting practices will be reinforced, trying to keep transparency at high levels.

The Proposal in FULL

1. Minimum Initial Capital Requirement: $5 million
2. Requirement that firms offering 100:1 leverage set aside 10% of customer assets in additional capital. Assuming a firm has $30 million in customer assets: $3 million
3. CFTC concentration charges on outstanding open positions which can range from 6 to 20% of total net exposure. Assume a firm has $50 million in net exposure then 6% of 50 million would be: $3 million

What firms are in and out?

 FIRMS IN (CFTC Data for July)

• CMS
• FXCM
• Oanda
• Gain Capital
• Global Futures & Forex
• FX Solutions
• IFSCL USA
• Hotspot FX
• ODL Securities
• Interbank FX
• PFG
• Forex Liquity LLC
• Global Futures LLC
• IFX Markets

>>FOR MORE INFORMATION VISIT: http://www.cftc.gov/marketreports/financialdataforfcms/

FIRMS OUT (CFTC Data for July)

• Easy Forex
• I Trade FX
• 3D Forex
• MG Forex
• EFX Options
• GFS Forex&Futures
• Forex Club
• One World FG
• FX Intl Investments
• Bacera Corp
• CMC Markets (US)
• SNC Investments
• Direct Forex
• Forward Forex
• Royal Forex
• IG
• Nations Investments

Unregulated Companies (US)

• FXDD
• GCI
• Cletus Forex

Firms on Litigation (either NFA/CFTC)

• UGM FX
• AMI FX
• One World Capital
• Forward Forex
• WorldWide Forex
• Nations Investments
• Cal Financial Corporation
• Forefront Investments – CFG
• FX Option 1
• … more to come?

So what should you do?

• There’s no golden rule to say that any of the ‘capitalized’ brokers (remember, they are RETAIL firms) will not go bankrupt (US firms).
• However, there are ways to minimize the risk.
• Check for
•   (1) Years in Business
•   (2) Capitalization – the higher the better
•   (3) CFTC Litigation issues – if any
•   (4) Accounting / Trading practices  Trading practices include: leverage allowed, clearing of positions, reporting, etc.
•   (5) Kind of promotional material (aggressive, etc.)
•   (6) Insitutional Services (?)

Closing Words

 My personal opinion:

• The Retail FX World is changing for the better in the US. The UK has a solid track record as well in promoting fair retail business.
• The changes in the US, however, will not clear the arena from scammers (they will always be there).
• Do not get flashed by ‘magic’ deals, get a Firm that is serious enough for you to place your hard-earned money. If a firm is highly capitalized, there must be a reason for it.
• At the first sign of ‘bad practice’, either report it to the NFA or the CFTC, and quit the Firm immediately. Tomorrow it may be too late.

Back to The Brokers (re) Evolution

• Download full Tony Juste's presentation (as seen in the live webinar)

Published on  Thu, Sep 13 2007, 13:22 GMT

• More Reports from this Author
• More Reports from this Contributor

FXstreet.com  | Portaferrissa 7, 1r 2a, Barcelona 08002, Catalonia - Spain
http://www.fxstreet.com | forex@fxstreet.com