GUILTY Case# 2012-056 | Kovacs Norbert vs fxopen.com

[FXOpen NZ]

Dear Sirs,

The discussion of an individual case has grown from everyday practice of Broker-Client relationship into a dispute about problems of ECN model functioning as such. I suggest continuing our communication on the theory of organizing ECN and the use of its practical aspects in the specially dedicated to this topic section.

Conclusion:
The company has not broken any paragraph of the service agreement
To resolve the dispute the Company applied to the paragraph (c) from the agreement, since if otherwise the client would sustain significant losses. (please see below the applied paragraph from the agreement)

The Company may resolve all Disputes:
a). By crediting/debiting the Customer's Trading Account;
b). By re-opening erroneously closed positions;
c). By deleting erroneously opened positions or placed orders.


The Company took over the losses on the given transactions, which resulted from the execution trades on the account of the Company at the Liquidity Provider.
The company had no right to disclose the name of the Liquidity Provider, as NDA is associated with all the members of ECN. This is the normal practice of this business and the violation of such agreements will inevitably lead to negative consequences for the company.
The actions of the client may cause damage to the company’s reputation (image), on the basis of § 1 the Company reserves the right to begin litigation on the deliberate act of "black PR".
The company throughout the dispute provided the Client and the forum community with the comprehensive information presented in a proper manner.
The company asserts that the results achieved in this account were obtained only because of technological glitches. Otherwise, if the client had the great skill of trading, he could be able in the short term earn the amounts that would multiple times surpass the discussed values. Thus would bring substantial profits to himself and the Company.




With all the respect to the participants of the forum, once again want to inform you that the removal of transactions that were executed at prices later recognized as not by market price at the time of execution is a significant point of the agreement with any of the Liquidity Providers. This is the reality of the OTC FOREX.

Regards,
Denis Peganov

 

[brucewhain]

I see their explanation and think that you would have a hard time getting satisfaction in a court, unless you could prove they do this as a matter of course, that there's some kind of cooperation from the liquidity provider. They were always a little sketchy. Thought about opening an account in 2007 and got an unlimited demo that had some malware in it that activated after 24 hours. Said the heck with it. I'd close it before it happens again if you haven't already.

Of course the advantage of FPA is we can notify other traders without being able to get satisfaction in court, or in a case like this, anyone getting their money back. It may get so it's the only alternative the way things are going these days. You'd think a broker would be glad enough to take the money they earn legitimately but often I guess it's not enough.

 

[Boko Maru]

Dear Sirs,

With all the respect to the participants of the forum, once again want to inform you that the removal of transactions that were executed at prices later recognized as not by market price at the time of execution is a significant point of the agreement with any of the Liquidity Providers. This is the reality of the OTC FOREX.

Regards,
Denis Peganov

Well I'm getting a little off point, but the statement above is really the issue I have. Yes I know it's part of your customer agreement (one I never would agree to). But that statement essentially says you can change any trades you want on a customer's account anytime you want to.

Who decides if a price is "recognized as not by market price"?? You guys?

This is just standard bucketshop bullcrap that is part of all market makers customer agreements. True ECN's or DMA brokers do not have that kind of language as part of their customer agreements. I currently trade with a true "ECN", and I have never had any trade "adjusted" for any reason.

As for this current case, I guess the client agreed to it, so maybe that puts him in a bit of a bind, but it's really all just a gray area, since how does one decide which prices are correct and which are not? If you are the one that makes that decision then I think we know how that will go. And shifting the responsibility to some mysterious, unknown, un-named "LP" doesn't work any better either. My broker uses all the big investment banks as LP's, and they name them right on their website. And I've never had a problem

Oh well; lesson learned for the client I guess...

P.S. I do give you credit for at least coming on here to make a statement; that does count for something.

 

[Vix]

While broker should recognize trades, and really change their LP, since this is highly unprofessional from them to just cancel trades it is also obvious that this is also deliberate "fraudulent" behavior from trader who used slow feed from broker, but who can condemn him for it.

 

[ForexVerified]

(...)
The company asserts that the results achieved in this account were obtained only because of technological glitches. Otherwise, if the client had the great skill of trading, he could be able in the short term earn the amounts that would multiple times surpass the discussed values. Thus would bring substantial profits to himself and the Company.
(...)
Regards,
Denis Peganov

I agree 100%. People load up an arb EA, make a fortune in one day and are suddenly surprised to find out that they didn't get to keep the money? It's no different from walking into a casino and sitting down at the blackjack table with X-Ray glasses. Yeah you might win a lot of bets and make a lot of money but what are the chances you'll get to keep it? You have better chances of getting a black eye and some broken ribs.

If Kovacs was employing his normal trading methods that he uses every other day - on legitimate prices - then he would certainly have a case, and screenshots to prove it. But this is a one-day event with thousands of standard lots being traded on a $1,000 account. This isn't normal "click buy" and "click sell" trading.

Arbitrage trading might be normal in the financial industry but only the big boys with hundreds of millions of dollars get to play that game. They have the resources and lightning fast equipment to play arbitrage between two legitimate price feeds from big banks.

Metatrader 4 technology may be great but it is also old and sometimes there are lags or delays. Whether the fault of the LP or FX Open doesn't really matter. It's technology. When it is purposefully abused by people with "X-ray glasses" the broker has no choice but to defend itself and at the least, cancel the orders.

You guys know that I hate scammers. I'm fully dedicated to exposing scammers in the Forex market. But it really upsets me when innocent parties are accused and "flogged" in public forums like this. Go look at Kovacs screenshots of his trades and tell me you really think he was participating in normal, legitimate trading. Arb EAs are one of the biggest scams out there. I feel bad that Kovacs probably got scammed out of $2k by an EA seller but he should be filing this complaint against that vendor, not FX Open.

Vote "Innocent".

Scott Wang
Forex Verified

 

[FXpublish]

I agree 100%. People load up an arb EA, make a fortune in one day and are suddenly surprised to find out that they didn't get to keep the money? It's no different from walking into a casino and sitting down at the blackjack table with X-Ray glasses. Yeah you might win a lot of bets and make a lot of money but what are the chances you'll get to keep it? You have better chances of getting a black eye and some broken ribs.

If Kovacs was employing his normal trading methods that he uses every other day - on legitimate prices - then he would certainly have a case, and screenshots to prove it. But this is a one-day event with thousands of standard lots being traded on a $1,000 account. This isn't normal "click buy" and "click sell" trading.

Arbitrage trading might be normal in the financial industry but only the big boys with hundreds of millions of dollars get to play that game. They have the resources and lightning fast equipment to play arbitrage between two legitimate price feeds from big banks.

Metatrader 4 technology may be great but it is also old and sometimes there are lags or delays. Whether the fault of the LP or FX Open doesn't really matter. It's technology. When it is purposefully abused by people with "X-ray glasses" the broker has no choice but to defend itself and at the least, cancel the orders.

You guys know that I hate scammers. I'm fully dedicated to exposing scammers in the Forex market. But it really upsets me when innocent parties are accused and "flogged" in public forums like this. Go look at Kovacs screenshots of his trades and tell me you really think he was participating in normal, legitimate trading. Arb EAs are one of the biggest scams out there. I feel bad that Kovacs probably got scammed out of $2k by an EA seller but he should be filing this complaint against that vendor, not FX Open.

Vote "Innocent".

Scott Wang
Forex Verified

Definetly,I agree with you. Also we can take into account the following message from Kovacs
https://www.forexpeacearmy.com/fore...older/20290-fxopen-scam-see-my-proofs-2.html:

...
@ Carlos

No, I am not using EA nor any illegal tools and scalping is allowed at FxOpen. All my positions were manually opened and closed, and I only used moving averages.

I guess many traders wonder how I did it. Sorry to say, there is no secret nor magic tool. I have been trading for 11 years, my vast amount of experience and knowledge came to fruition and that day everything worked out just perfectly for me. I was in perfect physical and mental state, and I could execute my trades as I foreseen them. I was in "trans" and I became one with the currnecy market. I saw where the price would go. I did nothing illegal thus I deserve my gain.
...

 

[Boko Maru]

You guys know that I hate scammers. I'm fully dedicated to exposing scammers in the Forex market. But it really upsets me when innocent parties are accused and "flogged" in public forums like this. Go look at Kovacs screenshots of his trades and tell me you really think he was participating in normal, legitimate trading. Arb EAs are one of the biggest scams out there. I feel bad that Kovacs probably got scammed out of $2k by an EA seller but he should be filing this complaint against that vendor, not FX Open.

Vote "Innocent".

Scott Wang
Forex Verified

"You guys know that I hate scammers"?? Uh, who are you exactly? No offense but I've never heard of you and don't know who you are. But with only 19 posts here (?), that's not too surprising.

I appreciate that you have a different perspective, but you should at least respect those that differ from yours. How is an "arb" EA illegitimate? Would a true ECN like PFG Best for example, try to reverse these trades? Hardly. And why would they? They make money on the commissions so they don't care. And what are "legitimate prices" as you call them, vs. illegitimate? And how is one to know, and who makes that decision? Whether you call it "normal" click-buy and click-sell trading or not, in the end that's all a trader can do. And legitimate brokers don't care at all; it's only the bucketshops that do.

And how exactly does a trader "purposefully abuse" MT4 technology with "X-ray glasses"? Do tell! Earlier I asked for specifics on how this is done, but as yet, haven't seen anything. If using an EA is what you call abuse, then my goodness there are a lot of abusers out there. Feel free to be more specific and clear things up if you like.

And what the heck is "normal, legitimate trading"??? So if you owned a brokerage, you'd tell all your clients, "ok guys, you can only engage in 'normal, legitimate trading', understand?", and presume they know what you're talking about?

"Arbitrage is only for big boys with millions of dollars"?? Do you know about all the different methods that constitute arbitrage? Are you quite sure about that statement? I guess I need to tell my account balance then

Sounds to me like you've been buying into the broker smokescreens a bit too much...

 

[ForexVerified]

And how exactly does a trader "purposefully abuse" MT4 technology with "X-ray glasses"? Do tell!

I do apologize, I assumed most people would be familiar with the arbitrage EA's by now since there are so many complaints against brokers who won't let them keep the profits (like this case). See:
Ecn Fx Robot | EcnFxRobot.com reviews and ratings by Forex Peace Army as an example of an arbitrage EA.

It used to be known as:
Magic Fx Robot | MagicFxRobot.com reviews and ratings by Forex Peace Army

Visit the site and log into some of the trading accounts they display. This same EA/company is floating around under at least 3 or 4 different website addresses but this was the one I could remember off the top of my head.

I'm not saying Kovacs used this exact EA. It might be, or maybe one like it. People purchase EA's like this and then expect the brokers to let them keep the profits. And then they file scam complaints with the FPA when the broker says no.

Here's an example of a similar case that was filed against SynergyFX:

https://www.forexpeacearmy.com/forex-forum/guilty-verdicts/18610-guilty-case-2012-014-falmi-dorlo-vs-www-synergyfx-com-au.html

He turned a $300 account into $179,886 in 1 day and then filed a complaint against SynergyFX when they wouldn't let him keep it.

The argument that the broker is at fault for sending a delayed tick is somewhat true, but if they "fix" that issue, we may have to say goodbye to Metatrader. It would be nice if they could "fix" it without an extreme solution like that but if they could, they probably would have by now. These arb EAs have been floating around for at least 4 years. Some brokers have updated their terms and conditions to expressly prohibit them (like ProfiForex) but most brokers are behind the times and have not clearly stated their terms and conditions against this type of abuse. Instead most simply prohibit abuse in general while advertising that they allow all trading methods. I know FXOpen has said in their forums they do not allow arbitrage trading but I don't know if it's expressed in the terms and conditions.

Scott Wang
Forex Verified

 

[Boko Maru]

I do apologize, I assumed most people would be familiar with the arbitrage EA's by now since there are so many complaints against brokers who won't let them keep the profits (like this case). See:
Ecn Fx Robot | EcnFxRobot.com reviews and ratings by Forex Peace Army as an example of an arbitrage EA.

Ok, well my apologies too. I get a little fired up when dealing with issues related to market makers. And I do see you have been around a while; I just didn't recognize that, so again my apologies for not giving you your due respect.

I just don't deal with overseas market maker brokers anymore (largely due to Dodd-Frank), but even before then I was turned off by their business model. FxOpen at least acknowledges that they are a market maker, although in this particular case they claim that an LP was on the other side of the trade, and I'm not sure I believe that. I think it more likely they took the loss directly, and are trying to mitigate and/or eliminate that loss by deleting the trades.

In the end if a broker states that arbitrage is not permitted and a trader engages in it anyway, then the broker has a right to defend themselves as you said, as much as I disagree with their business model. But in my mind arbitrage itself is not a scam, it's simply exploiting market inefficiencies (not necessarily technology inefficiencies). And market inefficiencies will always exist, it's just a matter of knowing how to take advantage of them through legal, above board means.

Appreciate your comments, and my apologies once again. Have a good 4th

 

[Pharaoh]

Dear Sirs,

The discussion of an individual case has grown from everyday practice of Broker-Client relationship into a dispute about problems of ECN model functioning as such. I suggest continuing our communication on the theory of organizing ECN and the use of its practical aspects in the specially dedicated to this topic section.

In this case, the functioning of FxOpen's ECN model is critical to the issue at hand. I'd be more than happy to discuss ECN functionality elsewhere, but there's no way to exclude some talk of it from this conversation.

Conclusion:
The company has not broken any paragraph of the service agreement

Possibly true. This overlooks the ethical issue of allowing a rogue LP to wreck a client's trades.

The Company may resolve all Disputes:
a). By crediting/debiting the Customer's Trading Account;
b). By re-opening erroneously closed positions;
c). By deleting erroneously opened positions or placed orders.

If the errors are accidental, I'd be 100% behind you. Per statements from FxOpen in the Scam Alerts folder, the errors were NOT accidental.

The Company took over the losses on the given transactions, which resulted from the execution trades on the account of the Company at the Liquidity Provider.

Laudable, but insufficient considering the actions of the LP in this case.

The company had no right to disclose the name of the Liquidity Provider, as NDA is associated with all the members of ECN. This is the normal practice of this business and the violation of such agreements will inevitably lead to negative consequences for the company.

I'd be much happier of FxOpen had said "We are taking steps to change NDAs so that FxOpen no longer protects LPs that use cheap bucketshop tactics against our clients" instead of hiding behind agreements that do nothing to protect a client from these sort of tricks.

Funny how many other brokers brag about who their LPs are.

The actions of the client may cause damage to the company’s reputation (image), on the basis of § 1 the Company reserves the right to begin litigation on the deliberate act of "black PR".

A client of FxOpen got screwed out of profits due to the deliberate unethical actions of an anonymous LP. FxOpen hides behind it's own TOS and an NDA. The client is rightfully unhappy and complains in public.

Based on this, FxOpen is threatening to SUE.

I consider this threat alone enough reason to recommend against ever doing business with FxOpen. I strongly suggest that FxOpen immediately withdraw this threat.

Why not just insert an item in your TOS stating that unhappy clients surrender all rights to ever complain in public?

The company asserts that the results achieved in this account were obtained only because of technological glitches.

Technical glitches or deliberate acts of the LP? Let's see what's been said about this elsewhere:

it is my understanding that flash quotes injected into the market by the LP in order to attract liquidity resulted in FXOpen being unable to fill you at the prices quoted since the prices didn't exist any more at the LP's end by the time FXOpen could transmit the order. FXOpen sustained a loss at the LP's end so your profit did not materialise. The company has absorbed the loss and has accepted responsibility for the loss caused both by unfair practises by the LP and by the fact that FXOpen could not avoid the loss due to a technical deficiency.

So LP deliberately injected quotes to "attract liquidity". Were these prices ever real market prices?

As was explained previously, the problem was one of erroneous prices from an LP. It took some time to shut down this LPs incoming non market quotes.

Looks like the LP was providing "non market quotes". Sounds like false prices and cheap bucketshop tactics to me.

Otherwise, if the client had the great skill of trading, he could be able in the short term earn the amounts that would multiple times surpass the discussed values. Thus would bring substantial profits to himself and the Company.

Nice, just slap your client in the face while you're at it. Is "service with a snarl" now FxOpen's policy for dealing with unhappy clients? And you've got the nerve to accuse him of "black PR".

With all the respect to the participants of the forum, once again want to inform you that the removal of transactions that were executed at prices later recognized as not by market price at the time of execution is a significant point of the agreement with any of the Liquidity Providers. This is the reality of the OTC FOREX.

Once again, had this been a simple technical glitch, then FxOpen's actions would have been 100% correct. Then again, even if this had been a simple technical glitch, threatening to sue because a client was made very unhappy by it is one of the absolute worst customer service moves I've seen in a very long time.

Since it appears that FxOpen has clearly admitted that an LP was acting not just as a market maker, but was deliberately providing fake prices to lure traders in, the client has every right to be unhappy. He also has every right to let other traders know what happened.


My recommendations if FxOpen wants to try to restore their reputation:

1. Withdraw any legal threats immediately.

2. Begin negotiations with their LPs immediately, with the goal to end NDAs within 1 year. Other brokers brag about their LPs. Considering what happened, FxOpen should seek full transparency if they want to call themselves an ECN.

3. Offer Kovacs some reasonable level of compensation and a proper apology for what happened to him.