Anyone tried online fx trading??

Hi Amarnath:

Having been regulated by the NFA, SFA and the Central bank of Ireland since 1990, I would like to dispute your above statement.

1) If the broker is regulated either by NFA (CFTC is now NFA) or SFA or any other major regulator globally - the primary requirement by these regulators is that the client accounts funds are totally segregated from company accounts - this is a primary requirement and even in case of bankcruptcy creditors cannot lay claim to or attach funds in the the client acounts these funds belong to the clients and are returned to the clients by the regulator or the administrators appointed by the regulator.

2) All the above regulators maintain a central reserve compensation fund - funded through membership fees of brokers and paid for by brokers which also goes towards compensation.

3) All the broker members are required to provide monthly financial information to the regulators - which can also raise as an early warning flag about the financial condition of the broker to the regulators - in case of misappropriation of client funds.

3) As you assert that NFA only offer regulation to broker activities and regulator does not protect investor capital - this is also incorrect - these regulators are there not only to regulate the brokers but also provide protection to non-professional clients - except in the case of Professional or Corporate clients where the regulators assume that these two must have enough experience and market know how.

4) In case of the interbank market it is assumed that the participants are professionals and therefore the investor protection declines a little - but even here the broker is punished severely in case of criminal intent or activity - and the interpol does get involved incase of e-broker.

5) The beauty of all these regulations and regulators are that if the broker is found to be in minor breach of the regulation then they are warned and asked to put their house in order. A major breach is fined heavily and any criminal intent (such as mis-appropriation of client funds) is punished severely. The law that is applicable in all such cases is criminal law and not civil or commercial law.

6) Most offshore hedge funds are not regulated currently - because of professional clients, although regulators globally are working on bringing these under some sort of regulation.

Hope this will help put the record right.

Nautilus

Hi nautilus,

Thanks for some explanations .

I agree they are to regulate but not to protect is my point about regulators . for eg :

So, let’s assume Mr.x deposits $10,000 in a trading account with a broker or that he already has an account but don’t have open positions and is waiting for the G7 meeting next week to decide how to enter in the market. Everything seems fine but meanwhile for whatever reasons his broker shuts down all operations and goes bankrupt.
Now ?
Do NFA or CFTC regulations or Fidelity Bond 14 guarantees he’ll get his money back –NO
Did he have deposited funds in his broker’s bank account –YES
Does FDIC means Federal Deposit Insurance Corporation – YES
Is it possible NFA or CFTC to implement a requirement that:
- all client deposits/unused funds be kept in a FDIC insured account -YES
-or all brokers pay FDIC insurance for their clients – YES (if Bush decides so )
Are there any companies that keep all client funds in FDIC insured bank account(s) – YES (FX Solutions claims so)
Can NFA or CFTC guarantee that the funds are kept in such account and ensure its safety- NO

So, Mr.x is not so interested in any investment protection or protection of the invested funds …, the only thing he is concerned about is the safety of his unused cash/deposit that is supposed to stay in the bank and be available for withdrawal at any time.

I hope I made myself clearer.

“Do CFTC and NFA really protect investors?”



– the truth is that they are only “establishing and enforcing rules and standards for customer protection” but this doesn’t automatically provide any reliable protection for your money or investments nor it could protect you from financial crooks that may misappropriate your(client’s) money. It is the same as the thousands of laws and regulations created by the legislative and justice systems for our protection and enforced by the police …but neither of them can protect your $10,000 that you keep home from being stolen.
Lets go back to Mr.x case and his $10k account/deposit. He didn’t buy any “stock, commodity or bond”. He didn’t invest in any fund nor did he open any managed account with a broker. He didn’t invest in a “peace of real-estate” without doing his “proper Due Diligence”. He was doing his “proper Due Diligence” waiting for the G7 meeting before he takes an investment decision. He didn't open any position/entered a trade, but even if he did, he knows that his investment may “drop like a rock” and he is not looking for a protection against the results of his trading decisions. The only protection he is looking for is against his broker stealing his (clients) money and running for the border or another improper use of his investment capital. Simply, the existence of an account with a broker does not mean you have invested in anything(unless you’ve invested in a managed acc or a fund).
So, is Mr.x ( common investors ) are much different from a depositor in a bank or does he want something more – no, nothing more!
Here I will draw an analogy to be extra clear. “say you are the owner of a store and I’m a shopper there. I know that your products are non returnable, non refundable, do not promise any performance or carry any warranty. I also know that I can profit or lose if I buy and use any of your products but I’m fine with that, too. The only thing I’m not fine and do not feel comfortable with here is the lack of protection or insurance against you …stealing my wallet while I shop in your store.” Is that too much to ask for? …I don’t think so.
So, what was the purpose FDIC was created in a first place? - “FDIC was created in 1933 in response to the thousands of bank failures that occurred in the 1920s and early 1930s”, …“FDIC was created in 1933 to maintain public confidence and encourage stability in the financial system”.
Is it possible similar scheme to be developed for investor protection? Yes!
Should it be a government body providing the scheme? No, not necessarily.
Are there any such protection schemes developed around the world? Yes! ...there are several investor protection schemes that are available in large parts of the civilized world …unfortunately none of them available in the Wild Wild West where the best option is to choose a broker that provides you with a segregated FDIC insured account (if you qualify) , and again what you end up with isn’t a reliable protection because FDIC only protects you against bank failure …not a broker’s one.

Here are some useful links:

Financial Services Compensation Scheme (FSCS)- up to GBP 48,000 protection for investors/depositors customers of FSA authorized financial services firms operating in UK .
http://www.fscs.org.uk/about_us/compensation_limits/

FSA- the financial authority in UK
http://www.fsa.gov.uk/consumer-education/1_comp.html

Guarantee Fund for Depositors and Investors Act (GFDIA) – up to EUR40,000 investor/depositor protection for authorized financial services firms operating in EU (English translation).
http://130.228.210.132/finanstilsyn...s/guafun01.html

SAXOBANK- Denmark based broker provides GFDIA protected Forex, CFDs, Futures, Funds accounts.
http://www.saxobank.com/?id=960&Lan=EN&Au=0&Grp=0

Federal Deposit Insurance Corporation (FDIC)- insures bank deposits up to $100,000 in USA
http://www.fdic.gov/index.html

National Futures Association (NFA) – USA
http://www.nfa.futures.org/

And i like to point out again regulation may help but dont protect is my point


I have never said that CFTC and NFA aren’t doing a good job in cleaning and regulating!!! We do not need further regulating, …we need account (equity) protection sheme, and CFTC and NFA do not have to be the providers of such, but they can greatly contribute for the creation of one.
All I’m trying to say is that their protection is limited to the extent of trying to identify and prevent the implementation of fraudulent and manipulative practices that does not automatically interprets you can’t fall victim of broker failure(what about the unidentified ones), …and that they are nothing more than a police force of the financial markets. But as the real life police force can not guarantee that you won’t be victims of a crime same way CFTC and NFA can not guarantee that you wont be victim of a financial crime. The difference is that in real life you have the option to insure you assets …something you don’t have in CFTC and NFA regulated financial markets.
…and be careful with your supporting information because you once again made my point!!!
Excerpts of the NFA's “Pamphlet” as follow:

“You are relying on the dealer’s creditworthiness and reputation
Retail off-exchange forex trades are not guaranteed by a clearing
organization.Furthermore, funds that you have deposited to trade
forex contracts are not insured and do not receive a priority in bankruptcy.
Even customer funds deposited by a dealer in an FDIC-insured bank account
are not protected if the dealer goes bankrupt. ”

“You could be a victim of fraud
As with any investment, you should protect yourself from fraud.
Beware of investment schemes that promise significant returns
with little risk. You should take a close and cautious look at the
investment offer itself and continue to monitor any investment
you do make.”

“The CFTC also has the authority to take action against registered FCMs and their affiliates for violating the anti-fraud and anti-manipulation provisions
of the CEA in connection with OTC forex transactions
involving retail customers, but the CFTC cannot adopt rules to
regulate these transactions.”

“NFA’s forex rules do not apply to all FCMs and their affiliates,
however. Therefore, you should ask the dealer if NFA regulates its
forex activities.”

“Unlike forex dealers, firms and individuals that solicit retail
accounts for forex dealers and manage those accounts do not have to be regulated or affiliated with a regulated firm.”

So, I’m not comfortable relying only "on the dealer’s creditworthiness and reputation", because if we(the clients) can not get s*crewed for money, we can get s*crewed for a lot of money…!!!



I hope now its clear

Hi Amarnath:

You seem to have written a lot but as for making yourself clear I am not sure. It is just unfortunate that you have mixed up many things including FDIC (by the way FDIC insures all the accounts upto an amount of US$ 100,000 - so your Mr. X would have been protected if he had held his account with a bank.). By the way what was previously known as CFTC (Commodities & Futures Trading Commission) is now known as NFA (National Futures Association) CFTC does not exist anymore!

Another thing is that if the broker held his segregated client accounts with a bank then each individual client would be protected upto an amount of US$ 100,000 - but only if the bank went bust and not the broker!

But we are not talking about FDIC (which is a guarantor for the funds held by a bank) - please follow this link for further explanation:

http://www.fdic.gov/consumers/consum.../fdiciorn.html

The rest of your arguments you have answered yourself so I will not respond.

Nautilus

I am speechless!

Nautilus

Hi nautilus,

Hope this helps to this online community and clear some doubts . lets investors do their own due delligence about broker's before they open acct's and tks a lot for your contribution too

Hi ,

Hope now its more clear to all .

Nautilus,

Where do you trade FOREX from (Which country?). What are the different online brokers from USA?

Prashanth

Hi Prashant:

I am based in the UK and Ireland and operate from both these countries - and I plan on visiting India soon as I am building a house in Pune - so from time to time I will be operating from India - wonderful thing this online trading! This is the beauty about online trading - that you can be anywhere in the world and are still able to trade any market from anywhere.

Previously I was trading through Reuter2000 interbank terminal - which is again a sort of an online trading but closed to professionals, corporates, Financial institutions, hedge funds, banks and brokerage houses.

As for the online brokers there are many - and it is difficult to identify the nationalities of a lot of these online brokers as they operate on the web - and some although of US origin may have different domiciles including offshore centres like Bermuda, Luxumbourg, Cyprus etc. However there are some good brokers and there are some not so good - so do spend some time identifying the ones you want to trade through.

James and few of the forum members have mentioned some names on the forum - so check out other FX posts and you will be able to identify them. Although Refco is going thorugh some difficulties at the moment - it is still a good broker!

Regards

Nautilus