ALERT: Largest US Forex Broker FXCM Shut Down and Permanently Banned from NFA

It comes as no surprise to many, that the US biggest and baddest Forex broker, FXCM, has been shut down by regulators, and permanently banned from future membership, including the firm itself and several APs, including Dror "Drew" Niv, its founder, says the NFA"s website.  We talk about this a lot in our book Splitting Pennies- for those of you who want to understand more about what"s going on here - pickup a copy on Amazon.

FXCM simply could not run an honest business.  It"s important for those not in FX to understand that, just because FXCM is a fraud, it doesn"t mean that FX is a fraud.  Simply, that FX was a fertile ground for ponzi scammers, criminals, banksters, and the lowest level of white collar criminals.  WHY is that you ask?  Because FX is so greatly misunderstood, it"s possible for those with slightly higher IQ"s than the average investing public to pull the wool over the eyes of the retail customer, and in FXCM"s case - the regulators too.  Well, thanks to the NFA for bringing this case to a close, I"m sure all the victims who have lost money due to FXCMs petty scams and tricks will be comforted to hear the news that at least for our lifetime, they will not be able to continue their games.  

And, because of the lack of understanding - legitimate more high brow entities simply don"t want to touch it, and especially retail, it"s like getting their hands dirty.  FXCM has shown the world how NOT to run an FX business.  FXCM"s collapse is expected, by those in the know.  But the good news, at least for customers, your accounts will be safely transferred to Gain Capital.

Here"s a snapshot of the key info from the complaint and decision filed by the NFA:

Here"s how FXCM"s petty scam worked.  So, around the time of 2006 - 2008 the dealing desk model of trading against customers was getting old.  Too many complaints, and too much competition.  Finally, FXCM settled a lawsuit for something a genius lawyer labelled "assymetric price slippage" which is high paid lawyer lingo for screwing the customer.  The only thing assymetric about the slippage was the ass, that is, customers always took it in.  You think that this is tongue in cheek humor, but this is how FXCM ran their business.  The scam sham company they setup to trick regulators they sarcastically named "Effex" a full phonetic spelling of FX.  If FXCM was really professional they could have resorted to naming it something regal, such as The Sapiano Organization or Wellington Capital Group, LP.  - the name use "Effex" shows how petty and sloppy FXCM"s management is.  I mean, some people on Wall St. have that sense of humor.  But, customers don"t think it"s so funny when they"re losing money on positive trades.  FX is difficult enough - and the fact that FXCM would resort to petty tricks like reversing positive trades in your account weeks after the profit was booked, it made for many angry customers.  Yes, they did that.  And worse, much worse.  

Anyway, so at some point FXCM knew they couldn"t perpetuate their dealing desk operations (trading against the customer) at least in plain sight, which they were.  So what they did, they created a model that was truely, STP, or sending orders directly to the banks.  However, what they did - in agreement with the banks, FXCM"s order flow was "tagged" electronically, and sent straight into the new fancy dealing machine that was now a super robot on steroids, waiting to take a look at your order and hold it, change it, reject it, slip it - all in the name of another company - NOT FXCM (this is really important to understand how this scam works).  So, FXCM could state, that they were not trading against the customer.  But they were sending their orders mostly to a firm that did trade against the orders, "Effex" - and this company was not only owned and controlled by FXCM, it was in their office, run by an ex-employee, on FXCM"s computer network, using the same IT.   To see a legal perspective of how FXCM"s .. excuse me.. "Effex" dealing operations worked, take a look at this statement from the complaint:

"Hold Timer" is the key here.  Traders that use FXCM"s "Trading Station" platform know the various messages when you go to buy, such as "please wait" and "order processing" and so on.  What"s happening during that time, they are waiting for a number of things to happen; the market to move in their favor (and in this case, they"ll fill your order at the worst possible price, like the moment you clicked) - or another customer to place the opposite order, where they could capture a huge spread, or for them to receive a huge discounted order on the wholesale market, and fill your order at a slipped price (but extremely profitable for FXCM).  It"s true - this is a money making machine!  But, like the Casinos, it was FXCM getting rich, not the customer.

The full complaint makes for great reading for those who want to understand - from a compliance and legal perspective - how the inner workings of a dealing desk broker work.  Note several key points that 1) FXCM was not a dealing desk broker (no broker will admit to using this model, they are all STP.. yeah right)  2) FXCM had their head up their rear so far they didn"t have an exit plan - they thought they were above scrutiny, because NFA was in their pocket.  Well, maybe they were - maybe this is all because of Trump!  Did I write that, or it just materialized on the screen - ...

In any event, traders should at least say "Thank You" to the NFA for finally bringing down this huge petty scam, that we can start to rebuild from the rubble, and build a real FX business, based on profitable FX alpha generating strategies, sophistocated liquidity algorithms that can manage risk in a complex market, and computing power.  

To contrast that statement, FXCM had an employee policy, to hire good sounding NYU grads that didn"t know about finance and were good on the phones.  FXCM invested zero in R&D.  Their IT was horrendous - except of course, their dealing software, which they invested millions in.

Thank you to all the participants of this case, to the NFA, to Trump for creating a pro-business environment, thank you to the clients who started the class-action against FXCM that led to the ass-slippage case; now let"s create a REAL FX market!

To learn more about the inner workings of FX and how to survive, checkout FC Trading Academy.  To read a good book on the topic of FX - checkout Splitting Pennies - Understanding Forex.

Largest Retail FX Broker FXCM Banned By CFTC, Fined $7 Million For Taking Positions Against Clients

The CFTC on Monday fined Forex Capital Markets, parent FXCM Holdings LLC and founding partners Dror Niv and William Ahdout to pay $7 million to settle charges it defrauded retail foreign exchange customers and engaging in false and misleading solicitations. As part of the settlement, FXCM agreed to withdraw its registration and never seek to register with the CFTC again, effectively banning it from operating in the US. The CFTC found the retail FX broker had an undisclosed interest in the market maker that consistently won the largest share of FXCM"s trading volume, and was therefore taking positions opposite its retail customers.

The CFTC also found that FXCM willfully made false statements to the National Futures Association in order to conceal FXCM"s role in the creation of its principal market maker as well as the fact that the market maker"s owner had been an FXCM employee and managing director.

The commodity regulator said in a statement that "between Sept. 4, 2009 though at least 2014, FXCM engaged in false and misleading solicitations of FXCM’s retail customers by concealing its relationship with its most important market maker and by misrepresenting that its "No Dealing Desk" platform had no conflicts of interest with its customers."

Niv, FXCM"s chief executive officer, and Ahdout, its managing director, are also barred from future CFTC registration and acting for those who are registered for the agency.

FXCM is currently the largest Retail Foreign Exchange Dealer (RFED) in the US, with an estimated market share of approximately 34.0% in December. It is unclear what the fallout will presently be for the US FX market following the CFTC order. The shakeup could prompt a Jefferies/Leucadia takeover, given the company’s existing financial obligations and past deal with Leucadia in the aftermath of the Swiss National Bank (SNB) crisis. The news also comes during after hours trading in the US – prior to the enforcement action, FXCM’s share prices had already been trading close to its 52-week low of $6.65, having closed at $6.85 Monday.

According to Gretchen L. Lowe, Principal Deputy Director and Chief Counsel of the CFTC’s Division of Enforcement, in a recent statement on the order, “Full and truthful disclosure to customers and honest discourse with self-regulatory organizations such as NFA are vital to the integrity and oversight of our markets. Today’s action’s demonstrates that the CFTC is committed to protecting customers from harm in the markets it regulates.”

Following the CFTC order, the National Futures Association (NFA) also stipulated that the group’s founders William Ahdout and Dror (Drew) Niv as well as FXCM have been forced to withdraw from NFA membership, also facing a permanent ban. The effective date for these actions is February 21, 2017. The NFA has accepted the settlement offer of FXCM, and the aforementioned individuals neither admitted nor denied the allegations outlined in the order.

As for FXCM"s thousands of retail clients, they may soon have to find more creative ways of losing their money than "investing" in 50x levered, central-bank dominated, HFT-infested currency markets whose  only purpose these days seems to be to inflict the greater damage by stopping out the largest number of positions possible.