My Forex Funds Scam Might Trigger Regulation Push on Prop Trading

<p speechify-initial-font-size="18px">The emerging sector of prop trading was subjected to a massive blow recently with the lawsuit from the US commodities regulator against My Forex Funds. Though the action was only against the platform and Murtuza Kazmi, its owner, for fraud, it raised questions about the practices of all prop trading companies. Finance Magnates approached multiple prop trading for interviews, but they preferred to stay behind the curtains after the My Forex Funds fiasco.</p><p speechify-initial-font-size="36px">Prop Trading: A Fad to Fade?</p><p speechify-initial-font-size="18px">Prop trading firms, short for "proprietary" trading, provide funds for traders to trade on live markets. They claim to reduce clients' risks of losing capital while trading. Also, the firms split the trading profits, which are sometimes as high as 90 percent, with the traders. This sounds great on the surface, but there are caveats.
</p><p speechify-initial-font-size="18px">Traders need to pay these prop trading firms to take on trading challenges. If the traders successfully complete the challenge, they will be allowed to trade with the company's money, of course, on many conditions. Some prop trading shops even charge monthly subscription fees.</p><p speechify-initial-font-size="18px">"The models do vary depending on the prop trading firm," FXStreet's Senior Analyst, <a href="https://www.financemagnates.com/executives/interview/automation-with-ai-needs-a-human-touch-fxstreets-ian-coleman/" speechify-initial-font-size="18px">Ian Coleman</a>, explained. "In a nutshell, they entice traders in by offering larger trading capital than you could normally afford. You pay a fee. You prove that you can consistently make a profit. The monies made are then split between the prop trading firm and the trader. It sounds great, but there are a lot of rules (set by the prop firm) that need to be adhered to."
</p><p speechify-initial-font-size="18px">The offerings of these firms, at least on the surface, made them very popular in the retail trading industry. While the <a href="https://www.financemagnates.com/institutional-forex/new-prop-trading-firm-tradiac-offers-redemption-to-remote-traders/" speechify-initial-font-size="18px">concept of prop trading</a> has existed for decades, many of these firms/platforms have popped up in recent years, including <a href="https://www.financemagnates.com/forex/the-trading-pit-gets-10m-in-funding-from-illimar-mattus-pinorena-capital/" speechify-initial-font-size="18px">The Trading Pit</a>, FundedNext, Traders With Edge, and Lux Trading Firm.
</p><p speechify-initial-font-size="18px">"Fundamentally, there is nothing wrong with prop firms trading with their own money," said Tom Higgins, the Founder and CEO of Gold-i. "The problems arise when it is not their own money, or they use client orders to front-run the market."</p><p speechify-initial-font-size="27px">The Bust of My Forex Funds
</p><p speechify-initial-font-size="18px">My Forex Funds, which ran an extensive advertising campaign on social media globally, was a typical prop trading firm, at least on paper.
</p><p speechify-initial-font-size="18px">Like any other prop trading firm, <a href="https://www.financemagnates.com/forex/310-million-prop-trading-fraud-regulators-freeze-assets-of-my-forex-funds/" speechify-initial-font-size="18px">My Forex Funds</a> offered a trading challenge on a demo account, with a fee, of course. Further, traders had the option to "skip" the challenge. However, they need to deposit a certain amount, and the platform matches that.
</p><p speechify-initial-font-size="18px">Business-wise, the platform was also doing very well: it has generated at least $310 million in fees over the last couple of years. My Forex Fund was founded in 2020.
</p><p speechify-initial-font-size="18px">However, the entire prop trading operation of My Forex Funds turned out to be a scam, according to the charges raised by the Commodity Futures Trading Commission (CFTC).
</p><p speechify-initial-font-size="18px">According to the 40-page court document, Murtuza Kazmi and his two companies, New Jersey-incorporated Traders Global Group Inc. and Canada-based Traders Global Group Inc, operated as My Forex Funds, decided their clients in many ways.
</p><p speechify-initial-font-size="18px">My Forex Funds promised retail customers that they could become "professional traders" by using Traders Global's money to trade against third-party "liquidity providers" and share any of the trading profits. However, the platform claimed that it had earned the money when the customers did, but, in reality, Traders Global acted as the counterparty party to most customer trades, meaning it gained at the loss of the traders.
</p><p speechify-initial-font-size="18px">To minimize the probability of customers' profitability, the company used pretexts to terminate customer accounts and misleadingly assess commissions to reduce customer account equity. The company even allegedly used manipulative software to execute customers' orders at worse prices. It only allowed a small number of "successful customers" to decrease customer profits and increase customer losses.
</p><p speechify-initial-font-size="18px">However, with massive marketing campaigns and the growing popularity of prop trading, My Forex Funds had more than 135,000 customers who signed up for its trading program after November 2021, and they paid at least $310 million in fees.</p><p speechify-initial-font-size="18px">The CFTC's complaint charged the defendants for "fraudulently soliciting customers to trade leveraged, margined, or financed retail foreign exchange (retail forex) and leveraged retail commodity transactions." The US regulator, and also the state regulator of Canada's Ontario, froze the funds of My Forex Funds.</p><blockquote speechify-initial-font-size="18px"><p lang="en" dir="ltr" speechify-initial-font-size="18px">Important Notice