Thanks go to Pharaoh over at forexpeacearmy.com for the information that allowed me to write this post.
I think most of us will agree that the CFTC and the NFA can be pretty annoying. With the new regulations they have forced on the Forex market, leverage for Americans has dropped to 50:1 on the majors.
However the NFA also does some good. Have you ever heard of Virtual Dealer Plug-Ins? If you haven’t, a virtual deal plug-in is a little piece of software that allows brokers to manipulate price slippages. It makes the slippage almost always fall on the traders side as opposed to the brokers side. As you can imagine over the course of the year getting 2-3 pips slippage on every few trades adds up. Not only can the software manipulate real slippage, it can also create fake slippage in calm markets. In other words, they will delay the opening of a trade for a few seconds and give traders the worst price possible.
Now it is important to note that slippage in the Forex is completely natural. Just because you get some slippage it does not mean your broker is cheating you. However, there are some brokers who use slippage to their advantage with Virtual Dealer Plug-Ins. The good thing is that we traders have someone on our side. The NFA has recently busted two major brokers who have been using Virtual dealer plug-ins. The brokers are Ikon Royal and the Forex.com (Gain Capital).
Forex.com and Ikon are two of the biggest brokers in the Forex industry. You would probably expect something like this with brokers in small poorly regulated nations. However, you would not expect this from two of the biggest and most used brokers in the world. Nonetheless these brokers have cheated their customers and the NFA has caught them out! These brokers have both been fined and have agreed to refund their customers for all the false slippage. Below are excerpts from the NFA press releases detailing these incidents.
Press Release For Forex.com:
For Immediate Release
October 28, 2010NFA orders $459,000 monetary sanction against New Jersey forex firm Gain Capital Group LLC
October 28, Chicago – National Futures Association (NFA) has ordered Gain Capital Group LLC (Gain), a forex dealer member located in Bedminster, New Jersey, to pay a $459,000 fine as a result of an NFA Complaint issued and a settlement offer submitted by Gain and its chief executive officer, Glenn H. Stevens.
NFA’s Business Conduct Committee alleged that Gain engaged in abusive margin, liquidation and price slippage practices that benefited Gain to the detriment of its customers. The Committee also alleged that Gain failed to maintain records for certain unfilled orders, failed to adequately review the activities and promotional material of the firm’s unregistered solicitors, and failed to supervise the firm’s operations.
Press Release For Ikon:
For Immediate Release
October 28, 2010For more information contact:
Karen Wuertz (312) 781-1335, kwuertz@nfa.futures.org
Larry Dyekman (312) 781-1372, ldyekman@nfa.futures.orgNFA orders monetary sanction of $320,000 against New York forex firm IKON Global Markets
October 28, Chicago – National Futures Association (NFA) has ordered IKON Global Markets, Inc. (IKON), a forex dealer member to pay a fine of $320,000 as a result of an NFA Complaint issued and a settlement offer submitted by IKON and its principal, Diwakar Jagannath.
The Complaint alleged that IKON engaged in certain price slippage practices on the MetaTrader platform that were favorable to IKON and caused disadvantageous trading conditions for certain customers. The Complaint also charged that IKON failed to supervise the MetaTrader platform used for their forex business, and failed to supervise the firm’s operations.
In addition to the fine amount, IKON must provide appropriate refunds to its customers as a result of these asymmetrical slippage practices.
Below are links to the case summaries from the NFA website.
NFA – Case summary for Forex.com
NFA – Case summary for Ikon.
What do you think about all this? Have your say in comment below!
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