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September 18, 2023
Are we still talking about My Forex Funds and the CFTC? We are, and probably will be for some time as the prop trading industry continues to deal with the repercussions.
Further fallout from CFTC vs MFF – Deel bails on prop firms
While My Forex Funds was crashing and burning at the feet of the CFTC, some publications began to dig into how MFF made its payouts. As most of you know, Deel, is a very popular choice for processing payouts among prop firms.
After MFF was widely labeled a fraud and a Ponzi scheme (which it isn’t), the Information, a costly publication for “high powered tech executives and founders,” approached Deel regarding their involvement with prop firms.
Initially Deel backed the prop firms, said everyone was following KYC protocols and stated that prop firms made up a very small percentage of their overall business. Their tone quickly changed, however, and soon they were reviewing their relationships with various prop firms.
“We will examine each of the prop trading companies to see if there could be a problem, and if found, we will cease working with them. We do everything by the book and want to ensure that we are doing everything the right way.” – anonymous Deel executive as quoted by CTECH.
Right around the time of that statement, Deel changed its terms of service to state that they won’t do business with companies that “support pyramid or Ponzi schemes, matrix programs, other ‘get rich quick’ schemes.”
By Wednesday of last week, Deel stopped processing some prop firm payments.
From a PR perspective, this makes sense. Deel doesn’t want to be even a footnote in any more CFTC complaints that contain the word “Ponzi”. I get it.
But morally speaking? How exactly does cutting off a traders ability to receive payments protect anyone that may have been taken in by these “Ponzi schemes”? It makes no sense. If this was actually about protecting consumers, Deel would continue to process payouts, so the traders could get paid, and not ripped off. Right?
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Prop trading A.D (After Deel)
It will be interesting to see which prop firms Deel continues to work with and which they don’t after their “examination.” So far they’ve stopped working with (or the prop firms themselves preemptively found Deel alternatives) with Bespoke Funding Program, the Funded Trader, Apex Trader Funding, and others.
Topstep so far continues to use Deel exclusively. [UPDATE 9/23: Topstep has also stopped using Deel, and are using ACH/bank transfers for the moment.]
As some of the prop firms have commented, this isn’t that big of a deel (pardon the pun). There are many different methods for processing payouts. Bespoke is just making direct bank transfers. The Funded Trader is using Wise (formerly Transferwise) and others continue to pay out in crypto.
There may be a delay for some prop traders as their firm contacts with new payment providers, but that should be the extent of the damage. However, this is another black eye for the prop trading industry, and it could cause further panic amongst prop traders. Panic, as I’ve noted, has felled prop firms before.
Risk and rewards of prop trading
We all know the rewards of prop trading – the ability to trade infinitely more capital than you can scrape together yourself. Successful traders can then maximize their profits, and make a career out of trading. That’s a pretty great reward!
The risks, however, are growing.
The main risks of prop trading are the strings — there are always strings attached to prop trading. There has to be. No one will just give you money to trade without testing your merits and/or attaching rules. And they have every right. It’s their money after all, so they can attach whatever strings they want. These strings represent a risk because if you violate the rules, lose your account, and all your hard work plus your evaluation fee goes down the drain. For disciplined traders, that’s an acceptable risk.
If the CFTC’s claims against My Forex Funds are accurate – and it appears that there is substantial evidence – MFF was actively working against its traders by closing out positions at different price points, increasing slippage, and canceling accounts under false pretexts. I think it’s safe to say that other prop firms are doing this too, and there were rumors to this effect long before the public fall of MFF.
That’s a second level of risk – even disciplined traders could fall victim to a prop firm trying to stack the deck against them. Again, all of your hard work, time and energy are at stake, in addition to your fee. Seasoned prop traders knew some of this was going on – or at least strongly suspected it, but to them, this too was an acceptable risk when the reward is up to $1 million in capital.
Now it appears the CFTC has its sights set on the prop industry. The risk that your prop firm of choice could have its assets frozen is real. For some traders, this last level of risk may make the rewards no longer high enough to justify using a prop trading firm.
And remember, all of this is in addition to the substantial risks of trying to earn money as a trader.
So what can we do? Some traders need the capital prop trading firms provide. Well, as traders, our job is to mitigate risks as much as possible. When choosing a prop firm we can do this by one or two of the following ways:
- Using prop firms that can prove they are funding traders with real capital in the real market – this makes the prop firm less likely to get CFTCed and means they are likely trading with you not against you.
- Using prop firms with a proven track record – firms that have been in the industry for longer are less likely to be actively trading against you and more likely to have their ducks in a row.
- Using prop firms not based in the US and therefore not in the CFTC’s jurisdiction – it may be a matter of time, but for now, other financial regulatory agencies don’t seem to be as aggressive towards prop firms as the CFTC.
A lot of big interest rate announcements are coming out this week, so markets might be moving faster than your super irresponsible friend who just bought a Tesla. If you need a refresher on the correlation between interest rates and forex, this article from forex broker IG is a good place to start.
Tuesday – Euro area releases core inflation data as does Canada.
Wednesday – UK inflation data comes out, but the big news will be coming from the other side of the pond. The Fed will release its interest rate decision and the FOMC will announce its economic projections.
Thursday – The Bank of England makes its decision on interest rates.
Friday – The Bank of Japan announces rates and releases inflation data.
Get ready, stay ahead of the news, and be safe out there, kids!