CFTC Charges ‘My Forex Funds’ with Fraud
On August 29th, 2023 popular prop firm, My Forex Funds, was charged with “fraudulently soliciting customers to trade leveraged, margined, or financed retail foreign exchange, and leveraged retail commodity transactions”.
My Forex Funds received a freeze order which was active immediately, and has shut down all activity until further notice. A court date has been set for September 11th, 2023. During which MFF will be notified whether or not they can continue operations.
Why My Forex Funds Freeze is a Big Deal in The Prop Firm Industry
Despite only being founded in 2020, My Forex Funds quickly became one of the most popular prop firms amongst forex traders. Thousands of traders have been left high and dry without any indication of whether they will be able to continue trading on their accounts. Some of whom have capital built up in their accounts.
The shutdown has left many traders skeptical of the future of prop firms, particularly those headquartered in Canada or The United States.
Are Prop Firms Regulated?
The answer is that prop firms can’t be regulated. The large majority of prop firms operate as private equity funds. This means that they only invest their own capital in the market. Due to this, they can not be regulated by any authority worldwide.
Instead, what prop firms can do is hire legal advisors to ensure that they operate in a legal and ethical manner.
There Are Two Types of Prop Firms – What’s the Difference?
There are two types of prop firms in terms of infrastructure:
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Those Who Are Connected to Multiple Liquidity Providers
A small number of prop firms use multiple, regulated liquidity providers to ensure that their traders are receiving the best trading conditions. Conditions such as tight spread, fast execution, etc. They are directly connected to these liquidity providers, with no middleman in the way. Since they use multiple and are not restricted to one, they are able to compare and filter only the best offerings for their traders. This is what you should be looking for in a prop firm.
The5ers and FTMO are both examples of firms that employ this system.
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Those That Assign Traders to a Retail Broker
The second type of prop firm is one that employs a broker, usually a retail broker. For example, Eightcap and Scandinavian Capital Markets. While the broker may be fully regulated, they control the conditions are there is no room for negotiation. The broker will also not disclose the liquidity provider that they work with, as proved in the screenshot below.
Due to this lack of “competition”, the broker has full control over the trades. This means that traders do not get access to the optimal conditions.
How to Pick a Reliable Prop Firm
Whilst it would not have been simple for traders to have predicted this downfall, there are a few things that traders should keep in mind to ensure that they work with dependable firms. By working with firms that are connected to regulated liquidity providers and have been around for a while, you can ensure that you are working with a reliable firm that prioritizes its trader’s success.
For more help choosing a prop firm, check out our article ‘10 Questions To Ask Yourself Before Choosing A Prop Firm’.
Conclusion
The reason for the My Forex Funds shut down is that they were not using either of these two options. They portrayed themselves as if they worked with liquidity brokers, but in fact, they were processing trades by themselves.
There is a common misconception amongst traders that knowing a firm’s broker means that the firm is more reliable and trustworthy. However, the opposite is often true. The most reliable prop firms are the ones that use multiple liquidity providers, and not a broker. These are the ones that will continue to stick around long-term.
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