NFA Forex Dealer Dead Pool

[forex scholar]

Many forum users have been asking for a specific link to the National Futures Association website so that they can read the proposal for themselves and hear it from the regulators themselves. Well, here it is:

http://www.nfa.futures.org/news/newsRuleSubLetter.asp?ArticleID=1942

As you can see the National Futures Association has spelled out clearly why they wish to raise the minimum capital requirement to $5 million. They apparently mailed out the formal proposal to the CFTC by Federal Express on August 17, 2007. So it looks like the NFA has fully signed off on the proposal. Now all that is required is the CFTC's approval.

I would strongly encourage everyone to read through the NFA's reasoning for increasing the minimum capital requirement at this link here:
http://www.nfa.futures.org/news/newsProposedRule.asp?ArticleID=1941

Everyone will have their own quotes they will highlight. Here are the ones I found most interesting:

"NFA received sixteen comments regarding the proposal. Eight commenters supported the increased capital requirement and eight opposed it."

"The comment letters that opposed the proposal noted that it will likely eliminate a number of the smaller FDMs. These smaller FDMs will be, obviously, those with less capital. The comment letters in opposition also noted that more capital does not necessarily mean that an FDM is better able to support and properly operate its forex activities. While more capital does not necessarily correlate to "better" FDMs, more capital does mean that they will have, at a minimum, a greater financial stake in running their forex businesses."

"One comment letter also noted that an FDM's risk-management and operational internal controls are more important than the amount of capital an FDM has. NFA agrees that an FDM's internal controls are important and, under separate cover, NFA is submitting for Commission approval a new rule to ensure that FDMs have proper internal controls."

"Several FDMs pointed to the recent MRAs and receivership proceedings as evidence that the current regulations are working. Regulating solely by enforcement proceedings is not the best way to protect customers, however. One of these FDMs claims that staff was unfair in its characterization of the problem with FDMs and forex. Specifically, this FDM pointed out that the number of bankruptcies involving traditional FCMs and FDMs is the same, with two of each.5 What this FDM does not recognize, however, is that the two traditional FCM bankruptcies occurred over a seventeen-year history of regulation, while those for FDMs has occurred in only a little more than seven years. Moreover, the traditional FCM population has average around 250 while the FDM population has averaged around 40."

All those critics who've been saying how "alarmist and irresponsible" my postings are now owe me an apology. The NFA itself is saying that the smaller firms opposed to the measure were telling the NFA the proposal could possibly eliminate themselves! That's right, some of the smaller firms in the Dead Pool we're telling regulators "you know this proposal could put us out of business." Yet when I say the same thing to the trading public the call goes out I'm "scare mongering." I'd love to know which firms opposed the rule and why they did. Wouldn't it be amusing to know which firms are right now telling their customers "nothing to worry about this rule won't have any effect on us" while they are pleading with regulators "please don't pass this or we could be forced to go out of business!"

In any case the NFA has apparently brushed aside the dissenters. They have officially put the rule on the table and all it will now take is the CFTC's signature. Apologies will be accepted in the order they are received

[WhipSawFX]

Originally Posted by WhipSawFX

Well well, whats even more interesting is that forexscholars location is just

Originally Posted by WhipSawFX

NFA Forex Dealer Dead Pool - The NDD Forum - Savvy Traders Want to Know

Well this weekend I was looking at my site stats, and noticed that I recently had a visit from FXCM , well I took a closer look at my logs and noticed that back on the 24th when I first posted the fact that forexscholar was outed as a potential shill for FXCM, I got a visit to my homepage from this forum, at the very time that forexscholar was posting here, well here's a snapshot forexscholar's posts when he was replying to me with the time highlighted, along with my logs where it identified that someone at FXCM visited my website from this forum just after he finished his post.



Here's the ARIN database entry which says that 72.5.142.135 is one of FXCM's addresses :

ARIN: WHOIS Database Search for FXCM

as well as their wiki edits on wiki scanner using the same IP address :

Wikipedia scanner results ip1=72.5.142.135

I particularly like this quote removed in this edit by someone at FXCM

Foreign exchange market - Wikipedia, the free encyclopedia


Well here's the quote from wiki scanner, which was quoted from the WSJ

According to the [[Wall Street Journal]] (''Currency Markets Draw Speculation, Fraud'' July 26, 2005) "Even people running the trading shops warn clients against trying to time the market. 'If 15% of day traders are profitable,' says Drew Niv, chief executive of FXCM, 'I'd be surprised.' "

Thats some quote ...

[forex scholar]

Another wacky post Whipsaw. Even if I were a shill for FXCM (which I'm not) that would not change the fact that the NFA just raised capital requirements to $5 million, which has completely discredited you and your ridiculous notions about excess net capital multiples.

http://www.nfa.futures.org/news/new...?ArticleID=1942

They did this because they believe that poorly capitalized firms below $5 million are at a greater risk of insolvency. The fact is when this rule is put into place the big firms are not the ones that will be staring death in the face. It will be the poorly capitalized ones. And that is what this thread is all about. No amount of spin or misdirection on your part can change these simple facts.

And it is these simple facts that the trading public is becoming keenly aware of.

[forex scholar]

With the NFA officially hiking the minimum capital requirement to $5 million (http://www.nfa.futures.org/news/new...?ArticleID=1942) all eyes are now on the CFTC. Look for two things:

1) Some kind of formal statement by either the CFTC or the NFA in which CFTC signs off on the NFA proposal (or the unlikely prospect of the CFTC rejecting it.)
2) The new updated CFTC Adjusted Net Capital Report which will be published here: http://www.cftc.gov/marketreports/financialdataforfcms/index.htm

The next updated adjusted net capital report will be particularly revealing. All the firms on this report will have had several months since the proposal was issued to start increasing their reported net capital. While no firm is required to hike their capital yet it will be very telling to see which firms have begun to prepare for the inevitable and which firms continue to hold their cards close to their vest. At this point any firm that isn’t ponying up the dough to capitalize themselves on these reports is really begging the question: is this firm destined to be strapped into the forex dealer electric chair? Or will they get a stay of execution?

My advice to the firms in the Dead Pool is simple: put up the money now and save everyone the trouble of guessing whether or not you will be here a few months from now. If your company capital is tied up and not available at the moment, well, tell the public what it is tied up in and specifically why you are not reporting it. Customers who open accounts with forex brokers are required to detail their own private financial holdings. In light of the seriousness of the capitalization issue, I think forex brokers should be held to the same standard.

[WhipSawFX]

Originally Posted by forex scholar

Another wacky post Whipsaw. Even if I were a shill for FXCM (which I'm not) that would not change the fact that the NFA just raised capital requirements to $5 million, which has completely discredited you and your ridiculous notions about excess net capital multiples.



http://www.nfa.futures.org/news/new...?ArticleID=1942



They did this because they believe that poorly capitalized firms below $5 million are at a greater risk of insolvency. The fact is when this rule is put into place the big firms are not the ones that will be staring death in the face. It will be the poorly capitalized ones. And that is what this thread is all about. No amount of spin or misdirection on your part can change these simple facts.



And it is these simple facts that the trading public is becoming keenly aware of.

Thanks for the reply, and stating that your not a shill for FXCM, however that does not mean you are not posting on their behalf unless you also say you dont work for FXCM also. Do you ? as per my previous post it someone from FXCM visited my website from this very forum when you had just posted your first reply to me, which suggests that may be the case.

I disagree with your discrediting my point with respect to multiples. Apart from the simple logic that its not the actual funds that one has available thats important, but the leverage that they use on those funds that is important, and this is what a multiple gives you in this case. Do you in fact trade ?

Additionally contrary to your belief, the regulators do believe that the multiple is important. This is highlighted with reference to NFA Financial Requirements section 12(b) in which if your multiple is not greater than 2x your required net capital you cannot claim exemtion to NFA Financial Requirements section 12(a) about margin (which effectively limits margin to 100x for majors, and 25x for most exotics as I understand it- but please correct me if Im wrong). Infact, from the link you posted in your previous post :

National Futures Association | News Center

Of the eight comments favoring the increased capital requirements, five also inquired about the effect this requirement would have on the security deposit exemption under NFA Financial Requirements Section 12(b). Financial Requirement Section 12(a) provides that an FDM must collect and maintain a minimum security deposit for each forex transaction, which is either 1% or 4% depending on the foreign currency. Financial Requirement Section 12(b) provides an exemption from this requirement for FDMs that maintain at least twice the amount of required minimum capital. The Foreign Exchange Industry Association and an FDM suggested that in light of the higher capital requirement the exemption be available to those FDMs that maintain greater than 150% of the required minimum capital. This is the same amount at which an FCM must file written notice with the CFTC pursuant to CFTC Rule 1.12(b), commonly referred to as the early warning requirement.

a number of the larger FDM's were concerned about not being able to remain 2x the net capital requirement after the changes, and asked for this multiple requirement to be reduced to 1.5x.

On looking at the multiples I provided in previous posts, and the historical ones for the past year, you could see that the only companies which clearly have had no problems with maintaining this level are GFT and FXSOL.

Strangely FXCM dropped to 1.35x last July !! Perhaps yourself or David could comment upon that ? Anyway, you could imagine that they would find it relatively easy to find the capital to maintain it at the required level. Here's the historical net capital, net capital requirement, net capital excess and multiple for FXSOL, GFT, and OANDA as well as FXCM for the past year according to the cftc website.

GLOBAL FOREX TRADING

34,470,133   750,000 33,720,133  45.96x  06/06
37,122,971   500,000 36,622,971  74.24x  07/06
34,736,561   750,000 33,986,561  46.31x  08/06
35,490,645   750,000 34,740,645  47.32x  09/06
38,008,401   750,000 37,258,401  50.68x  10/06
42,518,852   250,000 42,268,852 170.07x  11/06
41,926,086   250,000 41,676,086 167.70x  12/06
43,064,023   250,000 42,814,023 107.66x  01/07
49,230,861   250,000 48,980,861 196.92x  02/07
46,729,805 3,318,347 43,411,458  14.08x  03/07
48,424,627 7,274,431 41,150,196   6.66x  04/07
47,681,883 7,315,539 40,366,344   6.52x  05/07
49,664,118 6,904,864 42,759,254   7.19x  06/07

FXSOL

 6,480,899 1,524,162  4,956,736   4.25x   06/06
 6,156,536 2,681,586  3,474,950   2.29x   07/06
 8,220,570 3,185,346  5,035,224   2.58x    08/06
 7,570,191 3,779,373  3,790,818   2.00x    09/06 
 9,709,092 4,559,789  5,149,303   2.12x    10/06
16,996,071 3,325,075 13,670,996  5.10x    11/06
12,605,276 2,219,070 10,386,206  5.68x    12/06
10,346,288 3,421,031  6,925,257   3.02x    01/07
12,958,768 4,089,908  8,868,860   3.17x    02/07
15,838,819 2,147,927 13,690,892   7.38x   03/07
20,267,861 2,152,994 18,114,867   9.41x   04/07
12,650,227 2,367,978 10,282,249   5.34x   05/07
17,295,130 2,064,386 15,230,744   8.38x   06/07

OANDA's

31,542,422 2,634,634 28,907,787 11.97x  06/06
33,861,650 2,826,559 31,035,090 11.98x  07/06
38,473,911 1,000,000 37,473,911 38.47x  08/06
31,010,821 1,000,000 30,010,821 31.01x  09/06
29,553,939 1,000,000 28,553,939 29.55x  10/06
32,812,412 5,024,673 27,787,739  6.53x   11/06
19,211,631 1,000,000 18,211,631 19.21x  12/06
11,680,636 3,248,460 8,432,176   3.60x    01/07
36,194,560 4,918,687 31,275,873  7.36x    02/07
18,263,754 8,975,243 9,288,511   2.03x    03/07
44,156,965 9,667,173 34,489,792  4.57x    04/07
35,361,139 9,472,640 25,888,499  4.73x    05/07
49,222,317 9,172,410 40,049,907  5.37x    06/07

FXCM's

22,922,036 7,230,261 15,691,774  3.17x 06/06
20,224,347 15,000,000 5,224,347  1.35x 07/06
37,829,727 9,694,267 28,135,460  3.90x 08/06
36,369,280 9,034,472 27,334,808  4.03x 09/06
34,216,549 13,752,269 20,464,280 2.49x 10/06
33,866,745 12,430,298 21,436,447 2.72x 11/06
27,398,735 7,996,230 19,402,505  3.43x  12/06
62,730,650 10,449,076 52,281,574 6.00x 01/07
55,233,641 13,086,888 42,146,753 4.22x 02/07
65,845,152 11,440,213 54,404,939 5.75x 03/07
51,155,872 11,863,500 39,292,372 4.31x 04/07
55,668,469 12,428,930 43,239,539 4.48x 05/07
44,626,492 12,977,713 31,648,779 3.44x 06/07

Clearly GFT forex is heads and shoulders above the rest for Net Capital, and its ability to cover the regulatory requirements for net capital. However, on looking at them myself just now, the spreads arnt very attractive compared to OANDA. I think as with anything, its a balance between the cost to trade, the platform and the risk you take with depositing your money with them. I guess thats why a lot of people are attracted to the lower capitalised companies in the first place. They need to offer smaller spreads to attract customers from bigger more established brokerages.

here's some resources so you can see the actual prices you would get with each company :

GLOBAL FOREX TRADING QUOTES
eur/usd
3pips

FX Solutions Spreads, Currency Pairs and Premiums
eur/usd
3pips

OANDA FXTrade - Comparing the Spreads of Different Forex Brokers
eur/usd
1.2 pips

FXCM | Why Choose FXCM | Better Trade Execution
eur/usd
can't find any mention of specific spreads except a statement
spreads as low as 2 pips. However, OANDA has them as 3 pips on eur/usd
through - from the previous link

All the spreads I found online are consistent with the summary on OANDA's spread page :

http://fxtrade.oanda.com/spreads/com...r_spreads.shtm

An interesting point is that EFX/MBTRADING has zero pip spreads ($5 on $100k commissions instead) but currently is in your dead pool. However there are plenty of happy customers there. . . Infact Felix of forexbastards.com has a pretty strong positive opinion of MBTRADING and a pretty negative one of most of the other companies I have mention in this post.

Check out Felix's commercial here :
YouTube - Forex Brokers And Their System of Screwing Forex Traders

and Felix's comments on some of the brokers I covered here, that he likes to call bucket shops :
YouTube - Forex Brokers (ECN Forex Broker vs. BucketShop Forex Broker)

and his email which he sent out regarding the change in the requirements here :
The NDD Forum - Savvy Traders Want to Know - View Single Post - NFA is a Joke

It would seem to me that, EFX/MBTRADING are clearly a serious challenge (with zero pip spreads at times) to the larger FDM's which at first glance appear to benefit the most from these changes. I will be opening an account there myself. Also, they have a perfect record with no regulatory action from their regulatory body according to the NFA basic website.

ln anycase, thanks for visiting my webpage, I need all the traffic I can get.

[forex scholar]

Originally Posted by WhipSawFX

I disagree with your discrediting my point with respect to multiples.

Oh but you are discredited Whipsaw. The NFA has vindicated all of my points about the dangers of being poorly capitalized:
http://www.nfa.futures.org/news/new...?ArticleID=1942

And they have taken action. The minimum capital requirement has been raised to $5 million. You are indeed discredited...

[forex scholar]

FX Street has put together a very comprehensive review of the NFA Capital Requirement Proposal providing a number of links to magazine articles, current net capital numbers and other tidbits. Worth a look here:

http://www.fxstreet.com/fundamental/analysis-reports/special-coverage/2007-08-30.html

[WhipSawFX]

Originally Posted by forex scholar

Oh but you are discredited Whipsaw. The NFA has vindicated all of my points about the dangers of being poorly capitalized:
http://www.nfa.futures.org/news/new...?ArticleID=1942

And they have taken action. The minimum capital requirement has been raised to $5 million. You are indeed discredited...

Could you give you login and password for the NFA website, as I unlike you are not a member .... lol

[forex scholar]

This link is on the front page of the NFA's website. It isn't that hard to find:
National Futures Association | News Center

[WhipSawFX]

Originally Posted by forex scholar

Oh but you are discredited Whipsaw. The NFA has vindicated all of my points about the dangers of being poorly capitalized:
http://www.nfa.futures.org/news/new...?ArticleID=1942

And they have taken action. The minimum capital requirement has been raised to $5 million. You are indeed discredited...

Your too funny forexsavior,

you obviously missed the bulk of my post so here it is again



Additionally contrary to your belief, the regulators do believe that the multiple is important. This is highlighted with reference to NFA Financial Requirements section 12(b) in which if your multiple is not greater than 2x your required net capital you cannot claim exemtion to NFA Financial Requirements section 12(a) about margin (which effectively limits margin to 100x for majors, and 25x for most exotics as I understand it- but please correct me if Im wrong). Infact, from the link you posted in your previous post :

National Futures Association | News Center

Of the eight comments favoring the increased capital requirements, five also inquired about the effect this requirement would have on the security deposit exemption under NFA Financial Requirements Section 12(b). Financial Requirement Section 12(a) provides that an FDM must collect and maintain a minimum security deposit for each forex transaction, which is either 1% or 4% depending on the foreign currency. Financial Requirement Section 12(b) provides an exemption from this requirement for FDMs that maintain at least twice the amount of required minimum capital. The Foreign Exchange Industry Association and an FDM suggested that in light of the higher capital requirement the exemption be available to those FDMs that maintain greater than 150% of the required minimum capital. This is the same amount at which an FCM must file written notice with the CFTC pursuant to CFTC Rule 1.12(b), commonly referred to as the early warning requirement.

a number of the larger FDM's were concerned about not being able to remain 2x the net capital requirement after the changes, and asked for this multiple requirement to be reduced to 1.5x.

On looking at the multiples I provided in previous posts, and the historical ones for the past year, you could see that the only companies which clearly have had no problems with maintaining this level are GFT and FXSOL.

Strangely FXCM dropped to 1.35x last July !! Perhaps yourself or David could comment upon that ? Anyway, you could imagine that they would find it relatively easy to find the capital to maintain it at the required level. Here's the historical net capital, net capital requirement, net capital excess and multiple for FXSOL, GFT, and OANDA as well as FXCM for the past year according to the cftc website.

GLOBAL FOREX TRADING

34,470,133   750,000 33,720,133  45.96x  06/06
37,122,971   500,000 36,622,971  74.24x  07/06
34,736,561   750,000 33,986,561  46.31x  08/06
35,490,645   750,000 34,740,645  47.32x  09/06
38,008,401   750,000 37,258,401  50.68x  10/06
42,518,852   250,000 42,268,852 170.07x  11/06
41,926,086   250,000 41,676,086 167.70x  12/06
43,064,023   250,000 42,814,023 107.66x  01/07
49,230,861   250,000 48,980,861 196.92x  02/07
46,729,805 3,318,347 43,411,458  14.08x  03/07
48,424,627 7,274,431 41,150,196   6.66x  04/07
47,681,883 7,315,539 40,366,344   6.52x  05/07
49,664,118 6,904,864 42,759,254   7.19x  06/07

FXSOL

 6,480,899 1,524,162  4,956,736   4.25x   06/06
 6,156,536 2,681,586  3,474,950   2.29x   07/06
 8,220,570 3,185,346  5,035,224   2.58x    08/06
 7,570,191 3,779,373  3,790,818   2.00x    09/06 
 9,709,092 4,559,789  5,149,303   2.12x    10/06
16,996,071 3,325,075 13,670,996  5.10x    11/06
12,605,276 2,219,070 10,386,206  5.68x    12/06
10,346,288 3,421,031  6,925,257   3.02x    01/07
12,958,768 4,089,908  8,868,860   3.17x    02/07
15,838,819 2,147,927 13,690,892   7.38x   03/07
20,267,861 2,152,994 18,114,867   9.41x   04/07
12,650,227 2,367,978 10,282,249   5.34x   05/07
17,295,130 2,064,386 15,230,744   8.38x   06/07

OANDA's

31,542,422 2,634,634 28,907,787 11.97x  06/06
33,861,650 2,826,559 31,035,090 11.98x  07/06
38,473,911 1,000,000 37,473,911 38.47x  08/06
31,010,821 1,000,000 30,010,821 31.01x  09/06
29,553,939 1,000,000 28,553,939 29.55x  10/06
32,812,412 5,024,673 27,787,739  6.53x   11/06
19,211,631 1,000,000 18,211,631 19.21x  12/06
11,680,636 3,248,460 8,432,176   3.60x    01/07
36,194,560 4,918,687 31,275,873  7.36x    02/07
18,263,754 8,975,243 9,288,511   2.03x    03/07
44,156,965 9,667,173 34,489,792  4.57x    04/07
35,361,139 9,472,640 25,888,499  4.73x    05/07
49,222,317 9,172,410 40,049,907  5.37x    06/07

FXCM's

22,922,036 7,230,261 15,691,774  3.17x 06/06
20,224,347 15,000,000 5,224,347  1.35x 07/06
37,829,727 9,694,267 28,135,460  3.90x 08/06
36,369,280 9,034,472 27,334,808  4.03x 09/06
34,216,549 13,752,269 20,464,280 2.49x 10/06
33,866,745 12,430,298 21,436,447 2.72x 11/06
27,398,735 7,996,230 19,402,505  3.43x  12/06
62,730,650 10,449,076 52,281,574 6.00x 01/07
55,233,641 13,086,888 42,146,753 4.22x 02/07
65,845,152 11,440,213 54,404,939 5.75x 03/07
51,155,872 11,863,500 39,292,372 4.31x 04/07
55,668,469 12,428,930 43,239,539 4.48x 05/07
44,626,492 12,977,713 31,648,779 3.44x 06/07

Clearly GFT forex is heads and shoulders above the rest for Net Capital, and its ability to cover the regulatory requirements for net capital. However, on looking at them myself just now, the spreads arnt very attractive compared to OANDA. I think as with anything, its a balance between the cost to trade, the platform and the risk you take with depositing your money with them. I guess thats why a lot of people are attracted to the lower capitalised companies in the first place. They need to offer smaller spreads to attract customers from bigger more established brokerages.

here's some resources so you can see the actual prices you would get with each company :

GLOBAL FOREX TRADING QUOTES
eur/usd
3pips

FX Solutions Spreads, Currency Pairs and Premiums
eur/usd
3pips

OANDA FXTrade - Comparing the Spreads of Different Forex Brokers
eur/usd
1.2 pips

FXCM | Why Choose FXCM | Better Trade Execution
eur/usd
can't find any mention of specific spreads except a statement
spreads as low as 2 pips. However, OANDA has them as 3 pips on eur/usd
through - from the previous link

All the spreads I found online are consistent with the summary on OANDA's spread page :

http://fxtrade.oanda.com/spreads/com...r_spreads.shtm

An interesting point is that EFX/MBTRADING has zero pip spreads ($5 on $100k commissions instead) but currently is in your dead pool. However there are plenty of happy customers there. . . Infact Felix of forexbastards.com has a pretty strong positive opinion of MBTRADING and a pretty negative one of most of the other companies I have mention in this post.

Check out Felix's commercial here :
YouTube - Forex Brokers And Their System of Screwing Forex Traders

and Felix's comments on some of the brokers I covered here, that he likes to call bucket shops :
YouTube - Forex Brokers (ECN Forex Broker vs. BucketShop Forex Broker)

and his email which he sent out regarding the change in the requirements here :
The NDD Forum - Savvy Traders Want to Know - View Single Post - NFA is a Joke

It would seem to me that, EFX/MBTRADING are clearly a serious challenge (with zero pip spreads at times) to the larger FDM's which at first glance appear to benefit the most from these changes. I will be opening an account there myself. Also, they have a perfect record with no regulatory action from their regulatory body according to the NFA basic website.

ln anycase, thanks for visiting my webpage, I need all the traffic I can get.