Table of Contents
September 25, 2023
These are dire or exciting times to be in the prop firm world, depending on your perspective. We are definitely witnessing a seminal moment in the relatively short history of prop firms that offer funded accounts. That’s exciting! And a little scary.
What does seem obvious is that the gray area in which prop firms exist is shrinking. Prop firms will have to define themselves very clearly and make a strong case for why they aren’t brokers and shouldn’t fall subject to the heavy hand of the CFTC.
Today I’ll look at the Funded Trader, and how they are trying to stay off the CFTC’s radar.
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The Funded Trader embarks on a road of self-discovery
As I mentioned in previous newsletters, a lot of people are concerned that the Funded Trader might be the next to catch the CFTC’s eye. The Funded Trader seemed to hit the scene around the same time as My Forex Funds, had a similarly cultish following, offered nearly identical products and seemed to be using the same business model. Stands to reason that they’d be next.
There are some key differences that will hopefully keep the Funded Trader operating as usual, however, so the Funded Trader issued an “Official Statement” to highlight these differences. Now that I’ve read this document, I can honestly tell you that those differences are… pretty vague! And also poorlyspaced!
Let’s take a look at some key takeaways from the Funded Trader’s response.
“A trader evaluation entity”
All prop trading firms are scrambling to get back into that happy unregulated gray area out of the reach of the CFTC. The Funded Trader attempts to do this by pitching themselves as a “trading evaluation entity” rather than any sort of broker.
What is a trader evaluation entity? According to this document, a trader evaluation entity allows customers to pay to have their trading ability analyzed on a simulated basis. These results are shared with the Funded Trader’s partnered proprietary firm. This partnered firm then pays “qualified customers” for the “data” that they’ve provided, based on the net gain of that data.
So they’re not operating as any sort of broker/dealer. They are merely accepting payment to evaluate traders, then acquiring the data of the good traders, and paying them out based on that data’s performance in the market.
Let’s recap, from a trader’s perspective. You pay the Funded Trader so that they will assess your trading abilities in a fully simulated environment. In doing so, you are providing them with data, aka the trades you make. If your data proves valuable, meaning you make money in the market, you pass the assessment and become a “qualified customer.” As a qualified customer, you will be paid out for your data, aka the trades you make, based on how well that data performs in the market.
Basically the Funded Trader is trying to make it very clear that at no time do securities change hands, and at no time are they in possession of customers’ deposits.
Technically, this is all true, but it is impossible to ignore the fact that this “data” is based on financial markets. Is the difference between “data” and actual securities enough to keep the CFTC on the sidelines? We’ll see.
Did you know the Funded Trader is organized under Texas law?
You do now! The Funded Trader mentions it four times in this short document. Why was the Funded Trader organized under Texas Law? Because Texas law is some of the toughest law you’ll find anywhere – east or west of the Mississippi. We’ve all seen Walker, Texas Ranger! You do not break the law in Texas unless you want to pay the price. You needn’t bother, CFTC, the Funded Trader is under the watchful eye of Texas.
Sorry for the heavy dose of sarcasm there, but the fact that the Funded Trader is a Texas-based LLC really has no bearing on any of this and certainly won’t keep the CFTC at bay.
I’d suspect that the Funded Trader is based in Texas because Texas is one of the few states without a corporate or individual income tax so Texas-based LLCs pay only Federal tax, certainly not because Texas holds companies to any sort of higher standards.
“How can we guarantee TFT won’t be in a bad situation, how are we different?”
This is the million dollar question for anyone who currently has a Funded Trader account or is considering one. Like I said above, for superficial reasons it would seem like MFF and TFT are pretty similar. So I want to know exactly why the Funded Trader is different.
So how did the Funded Trader answer the million dollar question that they themselves posed? With about five bucks of b.s. Here’s there answer in total:
“We are open about TFT’s principles to be honest, transparent, and support the trading community. We take what we regard as our responsibility to that community seriously. We believe based on our compliance initiative and effortsthat our legalstructure and overall strategy have and will continue to remain sound.”
That is so vague. Yes, I am always impressed by the Funded Trader’s transparency. They’ve done a lot to pull back the curtain on prop firms’ finances. However, I really needed some specifics here. Something along the lines of: “MFF purposely altered prices, increased slippage, and bumped up commissions in order to trip up its traders. We here at the Funded Trader would never consider doing anything of the sort.”
At a minimum, I need a statement like that. Just tell me that MFF cheated traders in ways the Funded Trader doesn’t. Why can’t they say that?
Then from there they could also explain the technical differences between themselves and MFF, including how they use third-party brokers and MFF didn’t, how they have a separate prop trading company copying trades, and MFF didn’t, etc.
The Funded Trader took a month to come up with a statement, and they couldn’t get beyond poorly spaced vagaries.
How do you release a statement at such a critical time in your company’s life and have so many typos?!?!
“Simulated basis in demo accounts”
This exact phrase was used five times in this document, so obviously it was an intentional point of emphasis. The fact that traders with the Funded Traders aren’t in the real market is essential to the argument that the Funded Traders is not, in fact, a financial institution and therefore should not be under the CFTC’s (or any other financial regulators’) jurisdiction.
Of course the demo environment, as good as it might be for avoiding regulators, also can lead to a lot of shenanigans, both by traders who are trying to gain the system and by MFers like MFF who are actively working against their traders.
The Funded Trader Press Conference
Remember everything I just complained about vague statements and unanswered questions from the Funded Trader? I take it all back!
Angelo Ciaramello, the CEO of the Funded Trader, hosted a pretty amazing “press conference” on Discord, which will soon be available on YouTube. (I’ll add a link as soon as it’s available.) Over more than an hour, Ciaramello directly answered questions from traders all over the world, and did a lot to alleviate concerns about the Funded Trader’s future.
I strongly suggest you listen to the whole thing, but here’s a few highlights that Ciaramello addressed:
- Deel: Ciaramello says Deel will reevaluate their current freeze of prop firms in a few months, but he is not optimistic they will be coming back to the prop trading business. It is possible, but he’s searching for long term alternatives.
- Other payment options: The Funded trader is looking at crypto alternatives, and expects to have crypto payouts soon, but at the moment they are limited by a maximum $10K withdrawal limit.
- Moving to Dubai: It sounds like it would be a last resort, but if US regulators continue their crackdown, a move to a more prop firm friendly country isn’t entirely out of the question.
- Prop firm in the Cayman Islands: Ciaramello cleared up the relationship between the Funded Trader and their prop trading company, which is based in the Caymans. They don’t copy all trades, but use their trader’s data to identify new trading ideas and profit from them,
- The bright side of the MFF debacle: Ciaramello was the first industry exec that I’ve heard put a positive spin on MFF’s demise. Although he feels for the traders, he sees this bust as one of the first indications of how the CFTC interprets the prop trading firm business model.
- Risk: Ciaramello was very candid about the fact that they can’t guarantee they aren’t the next prop firm in the CFTC’s crosshairs. They’re doing everything they can to maintain compliance, but without industry-specific regulations, they’re not sure what they are complying to. He hopes that clear, ethical guidelines will one day govern the industry.
It was quite a conversation. I’ve never really bought into the cultish devotion some seem to have towards the Funded Trader, but I can see why a lot of people have faith in the CEO. Ciaramello comes across as honest, genuine and deeply committed to the success of the Funded Trader.
Ciaramello has pledged to hold these press conferences every two weeks. It is worth it to tune anyone and anyone can contribute, so get your toughest questions ready and head over to discord in a few weeks.
Nothing quite as exciting as last week on tap, but some interesting data dumps nonetheless, plus South Korea celebrates Thanksgiving. I love Thanksgiving, regardless of the country in which it is celebrated. I’ve never been to South Korea and unfortunately I won’t make it over there this week, but that’s not going to stop me from buying a turkey.
On Tuesday the US throws some data at you: building permits, consumer confidence and new home sales. Analysts are expecting consumer confidence and new home sales to edge lower, while building permits will be slightly higher.
Wednesday will see the announcements of Durable goods and crude oil inventories by the US.
Thursday brings us German inflation data, plus GDP, jobless claims, and pending home sales from the US. Fed Chair Jerome Powell will also give a speech.
Friday the UK announces GDP figures, and the Eurozone will bust out some CPI data
Saturday has a rare data dump as well, as China will be releasing PMI figures.
That’s it for this week, trade well!