Happy Labor Day to all who celebrated! The unofficial end of summer is upon us. That means it’s time to get serious again, as the CFTC very clearly demonstrated this past week.
The CFTC? Don’t prop firms exist in that gray area just outside the CFTC’s reach? Not anymore, apparently.
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My Forex Funds shut down by CFTC
This was a stunner. My Forex Funds is one of the biggest prop trading firms in the world, with more than 135,000 traders signing up at one time or another. It has effectively been shut down, at least for the time being.
On August 31, the CFTC and Canadian regulators froze all of My Forex Fund’s bank accounts.
MFF responded by closing down operations but expressing hope that business would return to normal as soon as their court dates (next week) allowed them to clear things up. After that announcement, however, the CFTC released their long list of charges, casting into doubt any MFF resurrection.
First off, the CFTC alleged that MFF was soliciting customers to engage in leveraged forex and commodity transactions without registration. Prop firms claim they are just offering educational services or engaging in proprietary trading rather than acting as an actual broker/dealer, so if the CFTC is saying prop firms are indeed brokers who need to be regulated, this could be a massive blow to the industry. Time will tell if this is just an issue with MFF or if it will affect other prop firms as well.
The CFTC’s complaint also had some serious allegations regarding how MFF ran their business. Allegedly they took a number of steps to prevent traders from reaching the funded stage and made more than $300 million over the past few years, mostly on failed evaluations.
The steps that MFF allegedly took were pretty nefarious: they charged deceptive commissions to reduce traders’ equity, used software to manipulate prices, closed positions at prices above or below what the trader saw, and closed accounts for unfounded reasons.
If that’s not enough, to really bring it home that MFF was working against its traders, they weren’t working with any liquidity providers and were acting as the counterparty in almost all of their traders’ transactions. That’s insane.
If that’s all true, they deserve to be shut down, as long as their traders get their due.
We have yet to see the CFTC’s evidence, but it is hard for me to believe MFF will be able to recover from these allegations. Even if they are ultimately proven not guilty, their reputation has taken a massive hit.
Which prop firms can we trust?
That’s the ultimate question at the moment. A lot of people trusted MFF, but there was always background noise from traders who felt things weren’t quite kosher. I included my own warnings in my best prop trading firms article, but still included them on the list. It seems like that was a mistake.
Things will get clearer in the next few weeks as we see if the CFTC just had an issue with MFF or if they are indeed going after the prop trading industry as a whole, but where do traders seeking funding turn to next?
What I’m seeing is a flight to quality. Traders are looking to the stalwarts – FTMO, Topstep and the 5%ers – to name a few. These are firms that have been around forever and seem to do things the right way.
Other traders are making the distinction between A-book and B-book prop firms. “B-book” prop firms, like MFF, don’t actually give out real capital, while A-book firms do. A-book firms, such as Lux Trading, are thought to be far more transparent since there’s real money involved, and have an incentive to actually help their traders.
Other traders are looking at firms that are based outside the US and Canada in the hopes that these prop firms won’t get caught up in any regulatory issues.
Personally, I’m not looking for a prop firm that can skirt regulations, I’m looking for a prop firm that is already above-board and won’t have an issue should regulators come calling. My money is still with Topstep.
Beyond our little prop trading world the great world spins, the invisible hand guides and we beat on, boats against the current. (McCann, Smith, Fitzgerald). Those of us who weren’t with MFF live to trade another week.
There’s not a whole lot going on in this week , shortened as we were by a US holiday. The US announces jobless claims and crude oil inventories on Thursday. Japan announces Q2 GDP the same day. Friday sees some German inflation data.
Be patient, wait for your setups, and don’t rush anything! Have a good trading week. We’ll be back next week – hopefully with less references to the CFTC!