PROP FIRMS AND WHAT’S NEXT! – STS4X.com (2024)

This turbulence has been triggered by the sudden closure of MFF, or “My Forex Funds,” a major player in the industry. In light of these events, we’ve decided to publish this article with the aim of promoting openness, fostering transparency and addressing the various concerns that traders may have regarding the proprietary trading industry.

Unexpectedly, My Forex Funds, a renowned proprietary trading firm, experienced an abrupt cessation of its operations. This sudden and severe measure has brought My Forex Funds’ activities to a standstill, preventing traders from accessing their funds and shrouding the firm’s future in uncertainty until these freezing orders are either revoked or altered.

Traders and investors associated with the firm were left in a state of astonishment upon receiving the astonishing news that provincial securities regulators in Canada and commodities regulators in the United States had issued mandates prohibiting MFF from participating in securities trading or gaining access to its bank accounts.

What Led to the MFF Shutdown?

According to the claims on theCFTC document, from November 2021 onwards, Traders Global Group, also known as My Forex Funds, served over 135,000 customers.

The primary allegations against the firm revolve around the CFTC’s belief that My Forex Funds misled customers about their profit-sharing model. They argue that rather than profiting when customers succeeded, MFF actually lost money when customers did wellsince they barely linked anyone to the real market through their LP.

Remarkably, the CFTC even likened MFF’s operations to a Ponzi scheme.

This conclusion was reached because MFF primarily depended on registration fees from unsuccessful traders to compensate their profitable counterparts rather than genuinely connecting successful traders to a Liquidity Provider and earning from genuine market profits. This dynamic posed a significant conflict of interest between MFF and its clients, completely deviating from what MFF had claimed on their website.

To exacerbate matters, MFF employed advanced software to manipulate slippage, tamper with trades when a trader was on the verge of reaching the drawdown limit in favour of MFF, and unfairly target successful traders by subjecting them to a fake increased spread, increased negative slippage, and other manipulations techniques that ensured traders to fail rather than offering them fair market conditions.

These conditions were structured in such a way that it became nearly impossible for their proficient traders to sustain profitability.

While certain allegations are aimed directly at My Forex Funds and the actions of Traders Global, others encompass practices that could potentially implicate numerous proprietary trading firms across the industrywho could have employed such manipulative tactics to diminish the profitability of their traders.

How the MFF Case with the CFTC Could Reshape the Proprietary Trading Landscape

Regulation and Oversight

The situation with MFF may pave the way for heightened regulatory oversight in the prop firm sector, potentially prompting regulators to introduce new governing laws for the industry.

From the client’s viewpoint, this is positive, as it would ensure a regulated and supervised environment for prop firms. However, on the flip side, it might also deter new entrants from stepping into the market, leading to reduced competition and worse offerings to clients.

As existing prop firms grapple with adhering to these regulatory norms, their competitive edge might also wane, which would potentially be passed onto the customer.

Capital Requirements

If regulations step in, there will be revisions in capital requirements for prop firms to ensure that they maintain adequate financial reserves and prevent systemic risks of not being able to pay out profitable funded traders.

Risk Management

Prop firms could be forced to reduce their leverage and offer accounts with slower growth potential, ensuring that traders aren’t taking on undue risks that might threaten the solvency of the firm.

Increased Operational Costs

Increased regulations typically result in increased compliance costs. Prop firms might need to invest more in compliance personnel and systems, which could lead to the closure of many who are not able to meet the extra cost requirements.

Reputation

The reputation of the prop trading industry could be affected if the case uncovers widespread unethical or risky practices, which would shake the trust in the whole industry.

Trader Behavior and Compensation

There might be changes in how traders are compensated, especially if existing compensation structures incentivize risky behavior. New practices might emphasize long-term profitability and stability over short-term gains.

Why Transparency in the Prop Firm Industry is More Critical Now Than Ever

Public Trust

After the MFF scandal, the public trust in the prop firm industry has been shaken. Transparent operations can help restore this trust, assuring the public that operations are above board and risks are being managed effectively. A transparent operational structure can help identify inefficiencies or vulnerabilities within a firm, promoting a more resilient and sustainable business model instead of relying on influencers and review websites to tell the public whom they should go with.

Balancing the Scales: The Need for Fair Rules in Prop Firms

Proprietary trading firms, or prop firms, provide traders with the capital and infrastructure needed to execute trades, while traders offer their skills to generate profits for the firm.

Given this symbiotic relationship, it’s imperative that rules governing traders should be balanced to ensure fairness for both parties.

Here’s why:

Motivating Performance

For a trader, a comfortable environment means better focus and potentially better trading outcomes. Overly restrictive rules can hinder a trader’s intuition or decision-making processes, leading to sub-optimal performance.

Balanced Prop Firm Risk

While it’s important for traders to feel empowered, prop firms have a responsibility to manage risk. Uncalculated risks can lead to significant financial losses. A balanced set of rules can ensure traders operate within a risk framework that protects the firm’s capital.

Long-term Growth

While strict rules might protect a firm in the short term, they can stifle the growth potential brought by innovative trading strategies in the long run. Balanced rules encourage experimentation, leading to long-term growth for both the trader and the firm.

In essence, fairness in prop firm rules is not just about ethics; it’s a strategic imperative. By crafting policies that give traders the freedom to operate comfortably, while also ensuring the firm’s assets are protected from undue risks, prop firms can pave the way for mutual success and long-term sustainability.

High Leverage in Prop Firms: A Red Flag for Real Market Conditions

In the complex world of trading, leverage serves as a double-edged sword. It refers to the capacity to control a large position with a comparatively small capital outlay. The allure of amplified returns comes hand in hand with the risk of magnified losses. Notably, when proprietary trading firms advertise tantalizingly high leverage, it prompts industry insiders to question its authenticity and underlying motives.

Liquidity Provider Constraints

At the core of trading lie major liquidity providers. A standard practice among these providers is their reservation towards offering sky-high leverage.

Their caution stems from an intimate understanding of the inherent perils tethered to high leverage and offer a max of 1:50 leverage on most symbols.Thus, when a prop firm offers leverage that surpasses the offerings of the liquidity providers, it drops hints of possibly not connecting traders to the real markets.

This creates a synthetic trading environment where the broker transforms into a counterparty for the trader’s moves.

In such terrains, offering high leverage becomes feasible, primarily because these trades never reach the real market. Instead, the prop firm is silently wagering against the trader’s instincts.

Prop firms that dangle the carrot of excessive leverage might either be skirting around these regulatory barriers or might anchor their operations in regions with lax oversight.

A segment of prop firms might champion a unique operational blueprint. Here, they willingly embrace heightened risks (thanks to the high leverage) and, in exchange, levy steeper fees, commissions, or spreads.

While this doesn’t directly cast shadows on their market connections, it’s an operational hue traders should be wary of.

So, before diving into trading waters with a prop firm, especially one that boasts towering leverage, a diligent background check is paramount.

What Traders Should Look For in a Prop Firm

Venturing into the world of proprietary trading can be an enticing proposition for traders looking to leverage someone else’s capital to amplify their gains. However, with the myriad of prop firms cropping up, the challenge lies in differentiating legitimate, reliable firms from those that might not have traders’ best interests at heart.

Here are some factors traders should weigh up:

Track Record & Longevity

In an age where new prop firms sprout up regularly, there’s something reassuring about a company that’s weathered at least five years in the industry. Such firms have survived various market conditions and have had time to refine their processes and offerings.

Beyond the Flash

A common marketing tactic among many new prop firms is to parade flashy profit withdrawal reviews. While these can be enticing, it’s essential to note that reviews can be manipulated, paid for, or entirely fabricated. “Independent” review platforms, word-of-mouth recommendations, and due diligence are crucial to discern genuine feedback from the orchestrated ones.

Training & Support

Especially for novice traders, the availability of training resources, educational materials, and responsive customer support can be instrumental in honing skills and navigating challenges.

Contract Clarity

Before diving in, it’s crucial to understand the agreement fully. This includes understanding the profit-sharing ratio, the maximum drawdown allowed, and other key metrics that define the relationship between the trader and the firm.

In essence, while the allure of a prop firm can be compelling, a judicious approach is required. Traders should avoid getting dazzled by glitzy promises and instead focus on tangible, proven attributes that signal a firm’s reliability and commitment to its trading community.

Prop Firms and the “Too Good to Be True” Predicament

In the dynamic realm of proprietary trading, new traders are frequently confronted with enticing offers from various prop firms. These firms may tout extraordinary leverage, eye-watering profit splits, or seemingly unbelievably low fees.

As the old adage goes, “If it seems too good to be true, it probably is.” Here’s why traders should exercise caution when met with such offers:

Overemphasis on Marketing

A firm that focuses excessively on marketing its ‘too good to be true’ offers might not invest as much in essential areas like trader support, technology, or market research. Such skewed priorities can be detrimental in the long run.

The Mirage of Outsized Leverage

Extremely high leverage can be tempting as it promises significant returns on a small capital. However, this comes with elevated risks. Real liquidity providers are often conservative with leverage due to the associated risks. A prop firm offering unusually high leverage might not be connected to genuine markets, leaving traders exposed to synthetic environments that don’t mirror actual market conditions.

Longevity Concerns

Firms that operate on unsustainable promises may not have the longevity that traders desire. Building a relationship with a prop firm is an investment of time and effort. If the firm closes shop due to its overgenerous offers, the trader stands to lose.

Questionable Ethics

Firms that bait traders with incredible offers may also resort to other unethical practices, like manipulating trade outcomes, delaying withdrawals, or suddenly changing contract terms.

It’s not uncommon for such firms to have a barrage of glowing reviews. As highlighted previously, reviews can be bought or manipulated. Instead of getting swayed by these, traders should look for genuine feedback from trusted sources or peers in the industry.

The Pillar of Stability: The Team Behind a Proprietary Trading Firm

In the intricate and dynamic world of proprietary trading, one aspect often serves as the linchpin for success and sustainability: the team steering the firm.

The quality, experience, and ethos of the people behind a proprietary trading firm (prop firm) play a crucial role in determining the firm’s longevity, reputation, and stability.

Here’s why the team’s importance cannot be overstated:

1. Experience and Market Knowledge:
   A seasoned team brings a wealth of experience and market understanding to the table.
2. Rubost Risk Management Framework:
   A knowledgeable team will be adept at creating robust risk management frameworks, ensuring that both the firm and its traders operate within sustainable limits, thereby safeguarding capital and longevity.
3. Ethical Foundations:
   The ethos of a prop firm is a direct reflection of its leadership. A team grounded in integrity and transparency sets the tone for honest operations, fostering trust among traders and stakeholders. This trust is vital for building and maintaining a positive reputation in the industry.
4. Trader Support and Education:
   A dedicated team recognizes the value of nurturing traders. They will prioritize quality support, educational resources, and training programs, ensuring that traders are well-equipped to succeed.
5. Relationship Building:
   The strength of a firm often lies in its relationships—whether with liquidity providers, technology partners, or regulatory bodies. A competent team will have cultivated strong, long-standing relationships that benefit the firm’s operations and its traders.

Review Sites and the Proprietary Trading World: Navigate with Caution

While review sites can offer valuable insights, traders must approach them with discernment, particularly in the wake of cases like the MFF incident.

First and foremost, the business model behind many review sites is ad-based revenue. Simply put, the companies that pay the most often get the most visibility.

This pay-for-promotion model means that, sometimes, the prop firms recommended the most might not necessarily be the best; they’re just the highest bidders. Such practices can lead to a skewed representation of the actual quality and reliability of a firm, potentially misleading traders.

Another layer of concern is outright bias. Some review platforms may have vested interests in promoting certain firms over others.

The consequence of such biases?

New or less-established firms might receive undue attention, while more reliable, long-standing firms might get pushed to the sidelines.

The MFF case has starkly highlighted these pitfalls. Review sites that don’t prioritize the best interests of their audience can mislead traders into aligning with firms that might not be in their best interest.

For the integrity of the industry and the security of traders, review platforms should emphasize recommending established and reputable prop firms over those merely willing to pay for prominence.

For traders navigating this landscape, it’s essential to diversify their research. While review sites can be a starting point, due diligence should extend to direct testimonials, industry forums, regulatory websites, and independent analyses.