Market Watch
While this was going on, the NFA was raising the Net Capital Requirements
for brokers, which
meant that smaller firms were forced either to be acquired by larger ones or cease to exist.
called “Dealer Dead Poolxi “NFA Capital Requirementsxii
Forum threads ” and ”
were proliferated on forums, where users speculated on the fate of these firms. Subsequently, a number of firms that existed in 2006 did not exist in 2008.
DEAD FIRMS WALKING Out of the following short list of US firms in trouble, only FXDD survived: One World Capital ($1,105,000), Velocity4X ($1,587,000), Direct Forex LLC ($1,523,000), FiniFX ($1,464,000), GFS Futures &Forex ($3,074,000), Nations Investments ($1,699,000), Royal Forex Trading ($1,102,000), SNC Investments ($1,565,000), FXOD ($78,000), I Trade FX (-$3,039,000! Close to Bankruptcy!) Money Garden ($3,399,844), United Global Markets (Bankrupt).
In some cases, as with Velocity4x, which was shut down and customers were acquired by Forex. com – customers had to move their accounts but no losses occurred. In other cases, such as One World Capital, customers’ capital was wiped out. One World Capital was finally determined to be a fraudxiii
.
INDUSTRY CONSOLIDATION & REgULATIoN While the US is not the only
FX
The financial success of Forex brokerages such as Interbank FX and oanda caught the attention of investors
regulatory environment in the world, and there are many Forex firms registered offshore, the US has always provided a framework for foreign regulators. In the case of retail Forex, many believe that regulation is needed. The argument may be different for Hedge Funds for example, where you have professional traders meeting sophisticated QEP investors who understand the complexities of Finance. The retail Forex investor may not be sophisticated (although many of them will spend hundreds of hours researching before opening their $1,000 account). Also fraud and unethical practices have been
abundant in Forex. Of the major US based FCM’s/FDM’s
offering
Forex, only a few have escaped NFA complaints (Most notably, Oanda, GFT, and FXDD). Regulation is an important part of the discussion of retail Forex, because Forex by itself doesn’t have any official framework or standards. Each broker handles rollover charges differently, although many follow some rules established by common practice. In fact, Forex regulation without considering retail market is nearly irrelevant, as most participants in Forex on an institutional basis have already been regulated and mostly work with other institutions or QEP’s as they are defined by the CFTC.
FX TRADER MAGAZINE July - September 2011 19
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