outofphase
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Let's start with the Forbes article:
"On Feb. 6, 2017, the NFA barred FXCM from membership due to “numerous deceptive and abusive execution activities that were designed to benefit FXCM, to the detriment of its customers.”"
source: https://www.forbes.com/sites/greats...what-it-means-for-forex-traders/#6cf0c30c177c
So whether FXCM neither admitted nor denied the CFTC findings which resulted in the CFTC's Order holding 'FXCM, Niv, and FXCM Holdings responsible for FXCM’s False Statements to the National Futures Association,' does not absolve FXCM from its wrongdoing and to be clear: the CFTC neither alleged nor claimed: the CFTC FOUND EVIDENCE OF DECEIT, ie making false statements, towards not only clients, but also the National Futures Association, and as a result, it issued an order banning FXCM and two founding partners, Dror (“Drew”) Niv, and William Ahdout, who were, respectively, Chief Executive Officer of FXCM and Managing Director of FXCM from doing business in the USA.
So basically, systematic and continuous (for over 5 years this was going on) unethical practices, and it's putting it mildly, were discovered by the regulator, and yet you come on these public forums trying to paint a rosy picture of the company as if it were no big deal, as if people should just shrugged it off and move on.
To quote the CTFC:
'The CFTC Order finds that, between September 4, 2009 though at least 2014 (the Relevant Period), FXCM engaged in false and misleading solicitations of FXCM’s retail foreign exchange (forex) customers by concealing its relationship with its most important market maker and by misrepresenting that its “No Dealing Desk” platform had no conflicts of interest with its customers. The Order finds FXCM, FXCM Holdings, and Niv responsible for FXCM making false statements to the National Futures Association (NFA) about its relationship with the market maker.
FXCM, under Niv’s and Ahdout’s direction and control, misrepresented to its retail forex customers that when they traded forex on FXCM’s No Dealing Desk platform, FXCM would have no conflict of interest, the Order finds. In addition, according to FXCM’s marketing campaign, retail customers’ profits or losses would have no impact on FXCM’s bottom line, because FXCM’s role in the customers’ trades was merely that of a credit intermediary, the Order finds. FXCM further represented that the risk would be borne by banks and other independent “market makers” that provided liquidity to the platform, according to the Order.
FXCM’s Undisclosed Interest
Contrary to these representations, the Order finds, FXCM had an undisclosed interest in the market maker that consistently “won” the largest share of FXCM’s trading volume – and thus was taking positions opposite FXCM’s retail customers. FXCM, the Order finds, formulated a plan in 2009 to create an algorithmic trading system, using an FXCM computer program that could make markets to FXCM’s customers, and thereby either replace or compete with the independent market makers on FXCM’s “No Dealing Desk” platform.
False Statements to the NFA
The Order also finds that FXCM willfully made false statements to NFA in order to conceal FXCM’s role in the creation of its principal market maker as well as the fact that the market maker’s owner had been an FXCM employee and managing director. The Order finds that during a meeting between NFA compliance staff and FXCM executives, Niv omitted to mention to NFA the details of FXCM’s relationship with the market maker.
The Order holds Niv and Ahdout liable for FXCM’s fraud violations as “controlling persons” who were responsible, directly or indirectly, for FXCM’s violations. Niv is also held liable for FXCM’s false statements to NFA as a controlling person who was responsible directly or indirectly for those violations. FXCM Holdings is held liable for FXCM’s fraud and false statement violations as principal of FXCM, the Order also finds.'
The full CFTC release here: http://www.cftc.gov/PressRoom/PressReleases/7528-17
But basically, it's easy to understand why FXCM behaved in this unethical manner. Since probability is against most traders, those traders who signed up for NDD (let's assume a kind of STP setup) would lose their money to the LPs instead of FXCM. So creating Effex was a roundabout way to keep these client losses in-house by decoupling FXCM from Effex on paper, the illusion of no-conflict-of-interest could be maintained.
The problem is the lying and the lack of transparency, which becomes a concern as the software booking all these NDD client trades could be tweaked to do god-knows-what, as in manipulating the client execution to such an extent as to maximise Effex and FXCM win ratio. Just another day in the longstanding tradition of the MT4 Virtual Dealer used by so many retail dealers to manipulate client execution so that trades would come out profitable for the dealer but not the client.
The motivation for all this: greed.
Now, to be fair, this also happens in the options market (look up the articles re Interactive Brokers exiting this market due to conflict of interest), and it happens in the stock and futures markets too where brokers will sell client flow to some upstream entity that will trade against the clients knowing that the vast majority will lose anyway. It's called 'shooting ducks in a barrel.' And for those who think that these markets cannot suffer from the same execution issues as the retail FX market, think again: All you have to do is look into the story of Haim Bodek and what happened to his company when trying to trade through BATS. Or look into how AMP Futures handles its client flow. So there's plenty of blame to go around.
In conclusion, although the practice is understandable, it remains unforgivable as, if not punished, it would condone the misbehavior of those who have the financial power and abuse it to take advantage of those who lack such power by taking away from them any possibility to engage in trading on a level playing field. Whether the fact that probability says that most traders will lose and thus the big guys are right to try to take advantage if it is irrelevant.
This is a question of principle. It is the principle of having a fair and level access to a fair market that is broken if we let these companies get away with it.
And that is why regulations and enforcement action by the regulator is necessary because without it, the little guy would never stand a chance against those who have the power to tilt the game in their favor. And that is not what trading should be about.
Put another way, if we want to be cynical about it and just throw our hands in the air and say that cheating is a fact of life, that's just how it is and just accept it, and continue down that path as well because there's nothing to be done, then we might as well go back to the Middle-Ages when people, sword in hand, would take matters in their own hands because this is the message here if no one does anything to clean up this industry. That is why we have rules and every player needs to abide by these rules. If we just want to pretend to abide, then WhyTF do we even bother having a legal system?
So to all traders reading this, please vote with your cash and take it to the few ethical brokers out there (or dealers, if they exist) and stop giving your business to those who cheat and lie without remorse--they do not deserve your business. This is how you will help clean up this mess of an industry.
