Proposed NFA Capital Requirement - page 18
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Update on Tradex Swiss AG Misery
The Boston Business Journal ran another article on the shenanigans going on over at Tradex Swiss Ag:
Immigrants trapped in forex mess - Boston Business Journal:
Like most Swiss firms Tradex Swiss AG is not regulated and customers have been burned as a result. Please note the following Swiss firms ARE NOT REGULATED and should be avoided lest you end up like the poor sods at Tradex Swiss AG:
ACM
Dukascopy
WestCapFX
MIG
GFX Group (Forex.CH)
Crown Forex
Immigrants trapped in forex mess
by Jackie Noblett Journal staff
Z. Song was amazed by the size of her friend's new house.
The Westford resident asked her friend, who never had a full-time job, how she and her husband were able to buy their new home in Acton. The friend said her husband invested money with Tradex Swiss AG, a Boston money manager that specialized in foreign exchange trading. Song recalls being told she should trade, too.
"They would never lose money, always make big money," Song said in an interview.
Little did Song know that her friend's husband, David Qi, was getting paid, according to his lawyer, to refer friends to the unregistered forex trading company. Song also maintains she had no idea that, just three months after her initial investment, her money would be locked up in a legal battle involving Tradex and its regulators. Tradex is now being investigated by governments on both sides of the Atlantic for trading currency without being properly registered, and over $4 million in investment accounts hangs in the balance.
The rest of the article requires a subscription but essentially contains tales of misery and woe from traders whose funds are frozen in the shuttered swiss brokerage. Of interest in this sordid tale are the actions of Tradex salesmen who were STILL soliciting customers to trade even as Tradex was going under!
In the midst of the investigation, email communications provided to the Boston Business Journal by former Tradex investors show that company continued to solicit business from customers.
A July 25 e-mail from a Tradex broker said that the operation had opened an account at Sovereign Bank for future trading. "In the future, please wire your fund to this account," the e-mail states.
So basically Tradex was encouraging traders to purchase tickets on the Titanic right after it had struck an iceberg. Talk about a complete lack of ethics.
This is a very important point to remember. Small forex brokers that are in financial trouble rarely let customers know they are in trouble ahead of time. Indeed, as Tradex shows, they will go so far as to cover up that trouble to their own customers and encourage them to keep sending in money even when all is lost.
This is why traders should never invest money with a poorly capitalized/unregulated firm. These firms can unwind rapidly and by the time the average trader finds out it is way too late to do anything about it.
NFA Accuses Royal Forex Trading of Fraud
Well the folks over at IKon can't be too happy with the news that the NFA has filed suit against RFXT and accused them of fraud in a new complaint:
BASIC Case Summary
IKon recently merged with former Dead Pool Member Royal Forex Trading and on RFXT's website they are listed as being a "division of IKon Global Markets."
So how does IKon feel about a division of its company being charged with the following:
"CHEAT, DEFRAUD, DECEIVE FOREX CUSTOMERS"
The NFA summarizes their complaint as follows:
On September 14, 2007, NFA issued a Complaint charging Royal with using misleading and fraudulent promotional material; failing to uphold high standards of commercial honor and just and equitable principles of trade; and failure to collect and maintain the required security deposit. The Complaint also charged Royal and Marsch with failure to supervise.
Perhaps the most illuminating aspect of the NFA Complaint against RFXT is this doozy about how Royal Forex clears its trades. NFA cites an IB that RFXT uses and in the process reveals how RFXT clears its trades:
InterBank Group's website also contained statements that falsely implied that customers would be trading in the interbank market. For example, the website included such claims as, "InterBank Group clients routinely benefit from the size and strength of one of the world's largest online foreign exchange providers," and "with access to over $1 billion in liquidity from the world's top FX banks, InterBank Group is able to pass along bank level pricing to our clients through our clearing firms."
In reality, customers hardly enjoy "bank level pricing" as InterBank Group widens the spreads from the prices that it receives from Royal by as much as 39 pips. Further, Royal offsets its forex exposure with IFX Markets, Inc., an NFA Member FDM, which in turn offsets its exposure with IFX Markets, Ltd. Thus, it was misleading for InterBank Group to suggest that its customers receive the same prices that banks and other institutions do, as the spread InterBank Group charges its customers is widened from the spread on prices that IFX Ltd. receives from its counterparties.
Lol! This is another downside of trading with poorly capitalized firms. Firms like RFXT do not have the kind of trade volume needed to get access to the best prices in the interbank market (although that doesn't stop these same firms from exagerrating their access to "interbank pricing.")
As it stands Royal Forex trading is clearing its trades through IFX? How on earth are you going to get good pricing trading with RFXT when they have to go cup in hand to one of their competitors to get their quotes? Why can't RFXT get a line of credit with a bank like the larger players get? The fact that they can't should send up red flags that these firms are far riskier to trade with than the more well established players.
The more you learn about how smaller forex firms operate (the fraud, the insolvency, the lousy pricing) the more traders should thank their lucky stars the NFA has raised capital requirements to $5 million because this industry is badly in need on an enema.
Well the folks over at IKon can't be too happy with the news that the NFA has filed suit against RFXT and accused them of fraud in a new complaint:
BASIC Case Summary
...Forexsapior:
When I was talking about "other things", like posting complaints against FXCM an others and not strictly about capitalization, you told me : " Linuxtroll the issue here is capitalization. A lot of these big firms have been slapped by the NFA for marketing problems. That doesn't concern me. What concerns me is the question of whether or not a firm has the financial resources to meet the coming capital requirement. Oanda and FXCM cleary do. These firms as of right now do not:..."
Can you explain what are you doing or what is your intention with this post? Is confusing.
Forexsapior:
When I was talking about "other things", like posting complaints against FXCM an others and not strictly about capitalization, you told me : " Linuxtroll the issue here is capitalization. A lot of these big firms have been slapped by the NFA for marketing problems. That doesn't concern me. What concerns me is the question of whether or not a firm has the financial resources to meet the coming capital requirement. Oanda and FXCM cleary do. These firms as of right now do not:..."
Can you explain what are you doing or what is your intention with this post? Is confusing.Agree! Forexsapior, did not answere some of my questions any more here or on other forum.
Keep Your Eye on the Ball
Again, this thread focuses on poorly capitalized firms. Why? Because poorly capitalized firms are the source of most of the industry's problems. What are those problems? As I have demonstrated in this thread poorly capitalized forex dealer members have gone out of business in record numbers this year mainly due to fraud and/or insolvency. Poorly capitalized firms do not have large compliance or accounting budgets which is what scares the NFA and is one of the main reasons the NFA wants to weed them out of the industry altogether.
And as this latest regulatory action demonstrates poorly capitalized firms are in no position to give their customers good prices when they themselves don't get good prices. Of course a lot of the larger firms have been cited by the NFA. But none of those large firms are getting cited for not meeting their capital requirement. Nor have we heard that they are clearing their trades through IFX as we have just found out with Royal Forex Trading! There's nothing wrong with IFX of course, but the point is why the hell would you trade with RFXT when you can just cut them out and trade with IFX directly and save yourself some money?
With each passing day the argument for trading with a poorly capitalized firm is being completely debunked. In fact, it doesn't even need to be debunked anymore since the NFA is going prevent customers from trading with these kinds of firms come December. At this point all I am doing is merely providing the background information as to why the NFA wants to do it.
With two months to go the following firms have still not met the $5 million minimum threshold. The next Cap report comes out the first week of November:
Hamilton Williams ($1,100,000)
IG Financial Markets ($1,014,000)
One World Capital ($1,170,000)
Wall Street Derivatives ($1,237,000)
SNC Investments ($1,247,000)
Advanced Markets ($1,269,000)
Direct Forex ($1,406,000)
Solid Gold Financial ($2,010,000)
CMC Markets ($2,806,000)
E FX Options ($3,055,000)
Forex Club ($3,308,000)
GFS Futures & Forex ($3,403,000)
MB Trading ($4,452,000)
Easy Forex ($4,628,000)
This thread is not about big firms because after the capital requirement passes none of the big firms will go out of business! The problems in this industry all stem from the poorly capitalized firms and that is what I focus on as a result.
All of these firms on your poor list are currently meeting the NFA capital requirement. Am I right?
Velocity4X (Hamilton Williams, LLC)
As a customer of Velocity4X, I received email from them yesterday that they intend to meet the new NFA capitalization requirement of $5 Million dollars.
NFA Makes New Comment on Cap Requirement
NFA Speaks on Cap Requirement
The NFA made another announcement about the coming increase in Capital Requirements stated below:
NFA announces effective date for increased minimum net capital requirements for Forex Dealer Members
Beginning on December 21, 2007, NFA Forex Dealer Members (FDMs) will be required to maintain a minimum net capital requirement of $5 million. The increase also raises to $10 million the amount of capital required for a security deposit exemption under NFA Financial Requirements Section 12(b). The amendments to NFA Financial Requirements Section 11 and the Interpretive Notice entitled "Forex Transactions" were approved by the Commodity Futures Trading Commission (CFTC) in late September.
"We have taken these steps because a Forex Dealer Member's activities create greater financial risks than the type of transactions involved in traditional exchange-traded futures and options," says NFA General Counsel Tom Sexton. "The increased capital requirement will result in greater customer protection."
FDM capital requirements have been a great cause of concern recently. During the past ten years, NFA has issued 11 emergency enforcement actions against FDMs for failing to demonstrate compliance with NFA financial requirements. In addition, since March 2007, nine different FDMs have fallen under the early warning requirement of $1.5 million.
"Customers trading off-exchange forex do not receive a priority under the Bankruptcy Code in the event of a firm's insolvency," says Sexton, "so it's crucial that FDMs have adequate capital."
NFA is closely monitoring its FDMs to ensure that those firms that wish to continue operating past December 21 will take the necessary steps to meet their new financial requirements.The following firms, according to the latest CFTC Report, do not meet the coming $5 million requirement:
Hamilton Williams ($1,100,000)
IG Financial Markets ($1,014,000)
One World Capital ($1,170,000)
Wall Street Derivatives ($1,237,000)
SNC Investments ($1,247,000)
Advanced Markets ($1,269,000)
Direct Forex ($1,406,000)
Solid Gold Financial ($2,010,000)
CMC Markets ($2,806,000)
E FX Options ($3,055,000)
Forex Club ($3,308,000)
GFS Futures & Forex ($3,403,000)
MB Trading ($4,452,000)
Easy Forex ($4,628,000)