That is a very impressive statement from I Trade FX. It is a statement no other firm has made to date. There was no equivocation or spin in their support for the rule. As such I will be removing them from the dead pool. You have my congratulations I Trade and my apologies for ever doubting you.
Now for all you other firms out there. That's how it's done.
Euro Money has just published an article on the rule proposal that backs up everything I have been saying. Furthermore we are now seeing a lot of other Industry players offering their comments. Here are some choice quotes from some industry titans: http://www.euromoney.com/article.asp...icleID=1398928
Todd Crosland, Interbank FX's founder chief executive, says: "The NFA has proposed to raise the minimum net capital requirement to $5 million. If you offer greater than 100:1 leverage, you would have to maintain two times that amount, or $10 million. We believe that by the end of the year the NFA will have fully implemented the new minimum net capital requirements. Our current net capital is [now] in excess of $25 million."
Gain chairman Mark Galant says: "Making sure all FDMs are well capitalized is a positive for the industry. The management at many of the smaller FDMs have no real FX market experience and have never managed a 24/5 trading operation. Besides being able to cover your financial obligations to your customers, you also need sufficient capital to post collateral with bank liquidity providers. An FDM that does not have good credit lines can get in trouble pretty quickly if they are unable to lay off their risk as needed.
The Euromoney article is also quoted as saying,
"If, as expected, US regulator the National Futures Association implements a proposal it has sent out to its 43 forex dealer members (FDMs), the result will be that many firms will have to attract fresh funding or close down. The proposal is due to be discussed by the NFA's board in August. If ratified, it will then go to the Commodity Futures Trading Commission, which effectively acts as the NFA's gatekeeper. The CFTC will almost certainly rubber stamp it."
"In its proposal, the NFA points out that the under-capitalization of many FDMs is the main cause of many of the problems that have plagued the sector, It is therefore looking to raise FDM's net capital requirements from $1 million to $5 million. Two other proposed changes to the NFA's concentration charges and its accounting requirements are likely to result in FDMs being obliged to have a minimum of $10 million in adjusted net capital to stay in business."
"The majority of FDMs do not have this much free capital available, so unless they receive fresh funding, they will almost certainly go out of business if the proposal is passed."
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I think the statements from Mark Galant and Todd Crosland are going to spur a lot of other firms to start coming forward to set themselves apart from the firms' whose futures are in doubt.
The result will be that many firms will have to attract fresh funding or close down
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And again, this points to the whole issue. Firms that are branches of larger companies and have deep pockets won't have an issue here. Firms that are legitimate operations with solid technology will also find it easy to raise money, as the article and quotes state. Firms that were basically set up as small bucket shops with the hope of luring in investors with silly ploys will not make it, as it always should have been. We'll know after the rule passes who that is. Anything else is somewhere between bad and good due diligence and some guesswork.
That is a very impressive statement from I Trade FX. It is a statement no other firm has made to date. There was no equivocation or spin in their support for the rule. As such I will be removing them from the dead pool. You have my congratulations I Trade and my apologies for ever doubting you.
Now for all you other firms out there. That's how it's done.
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Well, I've got Jared Martinez's book (10 essentials of forex trading) where he recommends I Trade FX and doesn't cite that it's his own firm he recommending. To me that seems very shady, but what do I know.
Before moving on from I Trade FX I wanted to comment further on the Press Release (included below), which is so close to the points I have been making that quite frankly I could have written it myself.
What impresses me is that unlike other firms that have said "well should the rule pass we'll meet the new requirement" I Trade FX addressed the undercapitalization issue head on. I Trade FX's President said "Undercapitalized firms dramatically increase risk for the investor. Raising the capital requirements will substantially reduce the risk to current and future clients that open accounts and will provide greater security for the client." This goes to the heart of the proposed NFA capital requirement which is that firms that are poorly capitalized are at far greater risk than firms that are well capitalized. This makes it clear I Trade FX gets it and is now taking a position of leadership on this issue. And as a result the industry has no choice but concede that I Trade FX is indeed a major competitor.
I Trade FX Press Release I-Trade FX experiences growth in excess of 700% for 2007.
Orlando, FL- August 15th 2007 – I-Trade FX, LLC, one of the nation’s leading Forex Brokers and provider of currency trading services for large and small institutional and individual investors, announced today that I-Trade FX has seen exceptional growth in 2007, with current revenues in excess of 700% year-to-date from 2006.
Mr. Martinez, Co-Founder and President stated, “I-Trade FX was founded by a very talented and experienced management team with over 75 years of experience in the investment banking arena. It is our mission to deliver a higher standard of dealing practices and customer service to the industry.” Mr. Martinez continued, “I clearly believe that after salvaging relationships with approximately 3,000 clients acquired from CFGTrader, the industry has no choice but to realize we are a major competitor.”
I-Trade FX welcomes and is in full support of the NFA’s most recent proposal to raise the minimum capital requirement from $1 million to $5 million for Forex Brokers. “Undercapitalized firms dramatically increase risk for the investor. Raising the capital requirements will substantially reduce the risk to current and future clients that open accounts and will provide greater security for the client,” reported Mr. Martinez.
Change it to "Proposed NFA Capital Requirement" As an olive branch I will request this at other boards as well.
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And as my olive branch, I'll say I apologize for my tone and demeanor in some of my postings. I have not been in the best of moods while reading some of these.
To ForexSavior, in light of his changing the tone and titles of his postings, I feel fairly confident at this point that he is doing this to do some good for the forex "community". His last few postings (the ones not dealing with me) have been very professional and polite.
As for anyone else on here, I don't know what future postings will hold, but I'll do my best to get back to the topic on hand of the potential requirement and what companies look good/bad for making it.
The I Trade stuff is interesting, although time will tell.
And again, this points to the whole issue. Firms that are branches of larger companies and have deep pockets won't have an issue here. Firms that are legitimate operations with solid technology will also find it easy to raise money, as the article and quotes state. Firms that were basically set up as small bucket shops with the hope of luring in investors with silly ploys will not make it, as it always should have been.
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Agreed. Sheesh Merlin its turning into a love fest around here. Perhaps you should mediate the Arab/Israeli conflict?
Actually $5million is not a impressed number, even $10 million. Forex brokerage business is a Gold Mine.
This is not only big news for the industry, but also a good news for those silicon valley based VC. LOL.
regards,
mike
P.S:No matter forexsavior agree or disagree, ECN tech is the trend for forex trading. Let's wait and see. If somebody want a sort of insider information, please go to http://www.e-forex.net/ and try a free subscription.
What a wild ride it has been the last few days in the market. Sadly, some traders have missed out on all the action. Specifically, the traders of Tradex Swiss AG. Tradex is apparently under investigation and there is some kind of account freeze for customers. Next week I’ll talk more about the Tradex case and also discuss the perilous state of FX regulation in Switzerland. Also, I’ve been getting a lot of tips and private messages about One World Capital. Something is afoot at One World and I’ll share with everyone what I have learned thus far.
That is an outstanding interview and straight to the point. The Net Cap minimum may get raised, but it only raises the barrier to entry to legitimate and non-legitimate folks from getting in the race. It doesn't protect the customer really any more in case of things like fraud, massive market events, and firm risk (to the extent that each firm takes risk, which is not something that the public will ever know in each case). It is a talking point and a very very small step for the consumer. Much bigger and more important steps should (and likely will) be taken and implemented. Do your due diligence on the overall backing of a firm, their track record, their technology, and their statements to the public via filings, and you will be fine.
As a result it is time for another Dead Pool Update:
Poorly Capitalized Firms
Advanced Markets ($1,039,000)
American National Trading Corp ($2,159,000)
Bacera Corporation (Shutdown!)
Cal Finanical Corporation (Shutdown!)
Direct Forex ($1,458,000)
E FX Options ($3,158,000)
Forex Club ($2,873,000)
FiniFX (Not Accepting New Customers)
Forward Forex (Shutdown!)
FX Option1 Inc (Shutdown!)
GFS Futures & Forex ($2,995,000)
Hamilton Williams ($1,130,000)
I Trade FX ($3,957,000)
MB Trading ($1,170,000)
Money Garden ($3,584,000)
Nations Investments (Shutdown!)
One World Capital ($2,308,000)
Performance Capital International (Vanished)
Royal Forex Trading ($1,171,000)
SNC Investments ($1,524,000)
Solid Gold Financial ($2,239,000)
Spencer Financial (Shutdown!)
Trend Commodities (Shutdown!)
United Global Markets (Shutdown!)
Worldwide Clearing (Shutdown!)
Wall Street Derivatives ($936,000)
So far not a single firm in the dead pool has shown any signs they have the capital to potentially meet the proposed requirements. Of course, they are not required to put forth any additional capital yet since the rule has not passed but you would think that at least one or two of them would take the initiative and pony up the dough now to show the world they are in it for the long haul.
Although I must doff my cap to I Trade FX for their near $4 million in reported capital. Contrary to my earlier ribbing they are getting closer to making the $5 million barrier to entry and just may stick it to the savior in the end. They have replaced the firm that was, prior to the most recent report, the most likely firm to make it off the Dead Pool List- MB Trading. The month before MB Trading was showing $3,952,000 in adjusted net capital but now they are only showing $1,170,000 in adjusted net capital. That is quite a drop for MB Trading. It leaves them with only $171,000 in excess net capital. Of course, it could be a one month anomaly so I won't jump to any conclusions. But in light of the new NFA proposal and the increasing drumbeat from the media about the likelihood of this rule becoming law it seems to me MB Trading should be INCREASING their net capital, not decreasing it. It leaves one to wonder just what's going on over in El Sugundo...
Unfortunately, the response was rather underwhelming and for the most part brushed off the severity of the current capitalization problem in the industry. Of course, being poorly capitalized according to CFTC reports, that's exactly the kind of answer one would expect from MG. But to their credit they have indicated they will be upping their reported capital on the next CFTC report so let's wait and see what the next report has in store for them.
However, their initial response to the proposal indicates a firm that doesn't quite get what has been going on in the industry these past few years. MG states they are "not opposed to increased Net Capital Requirements..." That's not exactly a ringing endorsement for the proposal. MG then focuses in on accounting standards, which everyone agrees need to be tightened up. Indeed, I wholeheartedly agree with this MG statement, "From reading the second part of the NFA proposal on internal controls, it is alarming to learn that there are firms out there which lack any of the requirements that NFA is only now going to enforce."
But I find the following statement to be wholly revealing of MG's ignorance of the issue, "Sound business practices and internal controls are the decisive factors that are much more important than an increased net capital." Wrong. As the NFA has demonstrated sound business practices and internal controls are often directly related to net capital. Firms that are not well capitalized are far more likely to cut corners and not implement proper internal controls. That is the lesson from the demise of such firms as CFG. I find MG's obtuseness to these kinds of examples to be very disturbing.
All in all MG's statement is a dodge. Unlike I Trade FX, Gain Capital, Interbank FX and others there is no recognition of the seriousness of the capitalization problem the industry is currently facing. Certainly there are other issues that need to be addressed (in particular dealing practices which MG touched upon in their interview.) But none are more serious than capitalization. As such, MG's statement is a big disappointment.
One of the more interesting comments made about the proposed capital requirement was made by Todd Crosland of Interbank FX who said, "The NFA has proposed to raise the minimum net capital requirement to $5 million. If you offer greater than 100:1 leverage, you would have to maintain two times that amount, or $10 million." It's a point I have not stressed enough. The minimum initial capital requirement is not the only capital requirement that firms have to make. There are other requirements as well and when they are added together they can quickly total $10 million. Let's do the math: Should the proposal pass the following requirements will have to be met: 1) Minimum Initial Capital Requirement: $5 million 2) Requirement that firms offering 100:1 leverage set aside 10% of customer assets in additional capital. Assuming a firm has $30 million in customer assets: $3 million 3) CFTC concentration charges on outstanding open positions which can range from 6 to 20% of total net exposure. Assume a firm has $50 million in net exposure then 6% of 50 million would be: $3 million As you can see when you add up all the various capital requirements most firms will need in excess of $10 million to be compliant. These cold, hard numbers are staring many of the poorly capitalized squarely in the face and no amount of spin can make them go away.
Unfortunately, the response was rather underwhelming and for the most part brushed off the severity of the current capitalization problem in the industry. Of course, being poorly capitalized according to CFTC reports, that's exactly the kind of answer one would expect from MG. But to their credit they have indicated they will be upping their reported capital on the next CFTC report so let's wait and see what the next report has in store for them.
However, their initial response to the proposal indicates a firm that doesn't quite get what has been going on in the industry these past few years. MG states they are "not opposed to increased Net Capital Requirements..." That's not exactly a ringing endorsement for the proposal. MG then focuses in on accounting standards, which everyone agrees need to be tightened up. Indeed, I wholeheartedly agree with this MG statement, "From reading the second part of the NFA proposal on internal controls, it is alarming to learn that there are firms out there which lack any of the requirements that NFA is only now going to enforce."
But I find the following statement to be wholly revealing of MG's ignorance of the issue, "Sound business practices and internal controls are the decisive factors that are much more important than an increased net capital." Wrong. As the NFA has demonstrated sound business practices and internal controls are often directly related to net capital. Firms that are not well capitalized are far more likely to cut corners and not implement proper internal controls. That is the lesson from the demise of such firms as CFG. I find MG's obtuseness to these kinds of examples to be very disturbing.
All in all MG's statement is a dodge. Unlike I Trade FX, Gain Capital, Interbank FX and others there is no recognition of the seriousness of the capitalization problem the industry is currently facing. Certainly there are other issues that need to be addressed (in particular dealing practices which MG touched upon in their interview.) But none are more serious than capitalization. As such, MG's statement is a big disappointment.
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Couldn't disagree with your more on this one, Mr. Savior. As already stated, I think that this interview really gets at the heart of the problems with this industry, and I do think some things are about to change. But the higher capitalization isn't the important piece (it is a piece, just not the key one). I think that the NFA is more on track with raising the requirement HIGHER for firms offering over 100:1, and I think that ultimately, there needs to be better measurements of the actual risk that a firm takes on THROUGHOUT THE MONTH (not just on the last day, as many go flatter to make sure that their positions at the end of the month don't effect their net cap) and have them maintain capital accordingly.
Couldn't disagree with your more on this one, Mr. Savior. As already stated, I think that this interview really gets at the heart of the problems with this industry, and I do think some things are about to change. But the higher capitalization isn't the important piece (it is a piece, just not the key one). I think that the NFA is more on track with raising the requirement HIGHER for firms offering over 100:1, and I think that ultimately, there needs to be better measurements of the actual risk that a firm takes on THROUGHOUT THE MONTH (not just on the last day, as many go flatter to make sure that their positions at the end of the month don't effect their net cap) and have them maintain capital accordingly.
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I would agree the NFA should raise the requirement even higher for firms offering sky high leverage. Right now there are some firms actually offering 400:1 leverage, which in the current tumultous market is a disastrous way to trade. But you can't get to any of those other issues until you weed out the pool of firms that are just barely treading water in the industry right now.
The CFG case is what keeps regulators up at night and what inspired the proposed rule change. Therefore, passing this rule will weed out the CFG's from the industry (as well as the hucksters) and at that point some of these other issues can be addressed.
I would agree the NFA should raise the requirement even higher for firms offering sky high leverage. Right now there are some firms actually offering 400:1 leverage, which in the current tumultous market is a disastrous way to trade. But you can't get to any of those other issues until you weed out the pool of firms that are just barely treading water in the industry right now.
The CFG case is what keeps regulators up at night and what inspired the proposed rule change. Therefore, passing this rule will weed out the CFG's from the industry (as well as the hucksters) and at that point some of these other issues can be addressed.
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I'm always amazed that the public is crazy enough to take on 400:1.
Nice strike!