Regulatory Agencies to the Rescue

It’s a bird! It’s a plane! No! It’s the CFTC and NFA!!! Okay, maybe they’re no superheroes, but in the forex market, this twosome is the closest thing to crime fighters as it can get.

The Commodities Futures Trade Commission (CFTC) protects the public against fraud, manipulation, and abusive practices in futures and commodities trading. And because currencies can be traded in futures, the CFTC also protects forex traders. Aside from publishing the Commitment of Traders (COT) report every Tuesday, the CFTC also protects the integrity of the clearing process of each transaction.

Meanwhile, its lil’ bro, the National Futures Association (NFA), also protects the public by overseeing the registrations of firms and individuals that conduct business in the futures market. In order to conduct any business in the futures market, a broker has to be a member of the NFA. The NFA enforces its standards and regulations on its members to ensure market integrity and equality in the market.

Now that you know how they roll, let’s take a look at the duo in action:\

Unfair Slippage Practices? Bad!

Last week, the NFA issued a complaint against a couple of forex brokers who were engaging in certain slippage practices that were um….”disadvantageous” to its clients. Apparently, IKON Global Markets and Gain Capital were using a plug-in called Virtual Dealer on their MT4 platforms which made sure that the market slippage was always in the brokers’ favor. Talk about conflict of interest!

Aside from that, Gain was also reprimanded for not keeping track of their clients’ unfilled orders prior to May 2009. The complaint also charged IKON for failing to supervise some of their firm’s operations.

Because of that, NFA slapped a $320,000 and $459,000 fine on IKON and Gain respectively. Bam!

On top of that, these brokers were ordered to give refunds to its customers whose accounts were damaged by these unfair slippage practices. Still, it looks like these firms got off lightly since many estimated that they’d be fined roughly $3 million for their violations. Tsk tsk.

That Smells Like a Scam

Also last week, Big Brother CFTC penalized a Texas-based investment firm for fraudulent practices. M25 Investments, Inc. and M37 Investments, LLC allegedly solicited potential customers to trade forex and forex options. The customers were “guaranteed” to receive interest payments on their investments, as well as renewal bonuses if they decided to reinvest.

It turns out this scam was a lot like the infamous Ponzi scheme, wherein “returns” paid to investors came from subsequent investors’ pockets instead of actual profits from the firm’s operations. Now this scheme can only keep running if new investors keep coming, but as soon as the new “investments” stop, the system collapses.

Good thing CFTC was able to put a stop to this scam before the investors lost all their hard-earned cash. What’s even worse is that the proponents of this scam targeted elderly individuals… in churches! Thank goodness for Big Bro CFTC, you don’t have to worry about your grandma falling for this scam!

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In dark times like these, it’s important to realize that there are indeed bad people out there trying to scam uninformed retail traders. It’s good to see that there are a couple of caped crusaders out there to protect aspiring traders like you and I.

I’ve got to give credit to the CFTC and NFA for making progress towards more market regulation. Recent regulations, like having to share profitability reports, are all steps toward creating more transparency in the markets.

If you feel that a broker is committing fraudulent practices, you can report it to the CFTC by heading to this page.