In recent weeks, the forex proprietary trading sector has found itself under the microscope due to a significant legal development—a lawsuit filed by the US commodities regulator against My Forex Funds. While this legal action singularly targeted the platform and its owner on charges of fraudulent activities, it has cast a pall of uncertainty over the entire proprietary industry.
According to the complaint filed by the CFTC, the defendants, operating under the name “My Forex Funds,” purportedly extended an offer to retail customers, presenting them with the opportunity to transform into “professional traders” by using Traders Global’s funds for trading against third-party “liquidity providers.” They promised customers a stake in any trading profits, emphasising that their success was intrinsically linked to the customers’ success with statements like “your success is our business,” and “we only make money when you do.” However, the reality was starkly different; Traders Global, rather than a third-party “liquidity provider,” served as the primary counterparty in the vast majority of customer trades.
The complaint further contends that Traders Global actively employed tactics to diminish the likelihood of customers trading profitably. This included the use of pretexts to terminate customer accounts, the deceptive assessment of commissions leading to a reduction in customer account equity, covert utilisation of specialised software to execute customer orders at prices less favourable than what appeared to the customer when placing the order, and handicapping the exceedingly few successful customers to curtail their profits and amplify their losses.
As highlighted in the complaint, the pitch by Traders Global achieved considerable success, drawing over 135,000 customers to enrol in their trading program since November 2021. These customers collectively paid at least $310 million in fees. The complaint further alleges that the proceeds from this fraudulent activity were used by Murtuza Kazmi (the owner) to acquire luxury residences and vehicles, as well as facilitate substantial transfers, amounting to tens of millions of dollars, into his personal accounts.
The information provided above is in accordance with details available on the CFTC website, and it is based on their official complaint against the defendants.
Forex proprietary trading firms specialise in providing aspiring traders with the enticing opportunity to access capital for live market participation. They promise to minimise the risks associated with capital depletion while offering traders a share of the trading profits, which can often soar as high as 90 per cent. While this arrangement may appear appealing on the surface, a closer examination reveals a complex set of considerations.
Traders interested in collaborating with forex proprietary trading firms typically must pay fees to participate in trading challenges. Successfully navigating these challenges grants them the privilege of trading with the firm’s capital, albeit under specific conditions and regulations. Additionally, some proprietary trading establishments impose monthly subscription fees on their traders.
Ian Coleman, Senior Analyst at FXStreet, provided valuable insights into the diverse models adopted by forex proprietary trading firms. “In essence, they entice traders by providing access to larger trading capital than individuals could typically afford. Traders pay a fee, must demonstrate consistent profitability, and subsequently, profits are distributed between the proprietary trading firm and the trader. While this model may seem enticing, it is imperative to adhere to the multitude of rules established by the proprietary firm,” Coleman elaborated.
The apparent benefits offered by these firms have contributed to their surging popularity within the retail trading sector. Although the concept of proprietary trading has been around for decades, a slew of new firms and platforms have emerged in recent years.
Tom Higgins, Founder and CEO of Gold-i, emphasised that there is nothing inherently problematic with proprietary firms trading with their own capital. However, issues arise when proprietary firms engage in trading that doesn’t involve their own capital or when they use client orders to preempt the market.
