Leading Forex Introducing Brokers Form Coalition to Challenge Proposed CFTC Rulings
Today, a group of leading Forex Introducing Brokers (IBs) announced the formation of www.ibcoalition.org, an organization comprised of independent, regulated Forex Introducing Brokers who have joined together to challenge the proposed CFTC rules titled “Regulation of Off-Exchange Retail Foreign Exchange Transactions and Intermediaries,” 75 FR 3282 (Jan. 20, 2010).

The main mission of the IB Coalition is to suggest significant changes to the proposed CFTC regulations. The IBs currently participating in www.ibcoalition.org are ATC Brokers (NFA Member #0358522), BackBay FX (NFA Member #0388617), Currensee (NFA Member #0403251), Fast Trading Services LLC d/b/a FastBrokers.com (NFA Member #0342002), Forex On The Go, LLC (NFA Member #0409594) and Gecko Financial Services, Inc. (NFA Member #0402367).

“We formed IBcoalition.org to come together as regulated IB businesses to oppose the proposed CFTC regulations that, if passed, will significantly change our businesses,” said Dave Lemont CEO Currensee. “Those of us in the IB Coalition are, we believe, the types of firms the Commission should be supporting as alternatives to the fraudulent unregistered solicitors the Commission has spent so much time and effort shutting down over the years. Unfortunately, though, in its zeal to curtail fraudulent solicitation practices, the Commission is proposing a set of rules that needlessly restrict legitimate Forex activities and will, if adopted, seriously undermine our ability to operate successfully as regulated alternatives. We welcome the opportunity to meet with the Commission and present our comments directly.”

The pending CFTC rulings propose that a Forex IB must enter into a guarantee agreement with a CFTC-regulated Forex Dealer Member (FDM), along with a requirement that the Forex IB may be a party to only one guarantee agreement at a time. By asking IBs to enter into an exclusive arrangement with only one FDM, IBs are limited in where they can refer customers, which creates a conflict of interest and is not aligned with the best interest of the customer. Independent IBs bring a valuable service to the retail trader. By carefully matching a trader’s style and needs with the right broker as it relates to spreads, trading platforms and customer service offerings, independent IBs help retail customers make the decision that’s right for them. Furthermore, these proposed rule changes are contradictory to the current CFTC policy in place for the on-exchange futures market, which allows independent IBs to introduce business to multiple Futures Commission Merchants thus enabling IBs to do what is in the best interest of their clients. The IB Coalition views the CFTC proposed rules as needlessly restricting legitimate Forex activities and capable of pushing Forex business off-shore, creating new opportunities for non-regulated or fraudulent businesses who don’t care about U.S. regulatory requirements.

The IB Coalition recently submitted a 10-page letter to the CFTC and, among other points, suggested the following changes to the proposed rulings

– First, the IB Coalition urged the CFTC to revise the proposed rules to permit a Forex IB to operate either as an independent IB subject to the same minimum capital requirements that apply to a futures IB or as a guaranteed IB.

– Second, the IB Coalition asked the CFTC to undertake a study of the retail Forex markets to assure that the rules it ultimately adopts are based on a solid factual understanding of the markets and are tailored accordingly.

– Third, the IB Coalition proposed the CFTC defer to NFA to set appropriate leverage restrictions as it relates to the proposed 10:1 leverage. An onerous leverage restriction, such as this, creates opportunities for unregistered fraudulent schemes to exploit U.S. customers is contrary to the public interest.

“As an IB, our job is to be objective and help the trader make the best decision about which broker best suits their needs,” says Stephen Leahy, President Back Bay FX. “The proposed CFTC rulings compromise the objectivity we are able to bring to our clients and completely disregards the best interest of the customer. Joining forces with the other IBs participating in ibcoalition.org is an important step in articulating our concerns both from a business and consumer-protection perspective. We welcome other IBs to join us in opposing the CFTC proposed rulings as it is currently written.”

The IB Coalition urges traders to make their voice heard by submitting their comments at www.ibcoalition.org.

About IBcoalition.org
IBcoalition.org is an organization comprised of independent, regulated Forex Introducing Brokers who have joined together to challenge the proposed CFTC rules titled “Regulation of Off-Exchange Retail Foreign Exchange Transactions and Intermediaries,” 75 FR 3282 (Jan. 20, 2010). The main mission of the IB Coalition is to suggest significant changes to the proposed CFTC regulations and a number of Introducing Brokers have already joined the group. To get more information or find out how to join, please visit www.ibcoalition.org.

Hi everyone

Yesterday I was surfing around and I found a few pieces of information that I did not like at all as I think they are unfair with the retail Forex industry that we all form a part of.

As you all know, the CFTC is trying to tighten regulations in the US in order to fight against fraud in the retail Forex Market. This is a very important initiative and I support it 100%, but the proposal of cutting leverage to 10:1 goes far beyond what I consider the appropriate way to fight fraud and enter into a very dangerous field of hidden interest and “who stole my cake?” stories if you know what I mean.

I’m very concerned that if regulators do not take the appropriated decisions – decisions that should be coordinated worldwide or at least pushed by top global regulators -, they could really turn Forex into a gambling business rather than an attractive asset class for investors to be incorporated into their investment portfolios.

Why am I saying all this?

1. I just found this Press Release from an Asian Broker

—————
08.03.2010/03:50:05 InstaForex increases the maximal leverage up to 1:1000
International online Forex broker InstaForex is glad to inform all clients about a record raise of maximal trading leverage. InstaForex Company has always strived for being the leader at Forex market in all its directions. So at present day, we are one of the first companies which provide our numerous clients with maximal trading leverage1:1000.
Since the 8th of May 2010 traders of InstaForex Company with deposits less than $1000 can set the leverage 1:1000, which undoubtedly will open new opportunities of work on international currency Forex market.
Besides, leverage from 1:500 was automatically raised to 1:600 at all other trading accounts which is one of the highest leverage ever! Starting from the 8th of March 2010 all new and already existing trading accounts with InstaForex will use leverage 1:600 for the most efficient trading at Forex market.
Trade and earn together with InstaForex!
—————

A leverage of 1:10 dramatically reduces the appeal of trading Forex, but 1:1000 is nonsense!… to me, this is not Forex.

2. An article from Joe Weisenthal, deputy editor at The Business Insider with the title:

12 Reasons Your Currency Trading Account Is About To Be Banned leaves an image of a Forex industry specifically going after poker players.
News like the 1:1000 leverage above just reinforces that unbiased view about the retail Forex industry.

3. The very same author James Weisenthal echoes about what Google describes as an error with the appearance of a Citi Forex Ad under keyword “casino bonanza online”
I do not know if it was an error or not, but this does not help the industry at all.

As always, your comments are very welcome.

Francesc

The Event:

At 10:00 AM EST on Tuesday, March 23rd, the National Association of Realtors (NAR) releases its monthly existing home sales figure.

Description:

Existing Home Sales is the number of existing residential buildings sold during the previous month. It does not include new construction. The figure is annualized which means the number is the monthly figure times 12. The currency theory behind this figure being important is that existing home sales trigger additional spending by the consumer for a host of products and services surrounding the home purchase. This spending increases economic activity which in turn spurs the economy lifting the domestic currency.

Trader Take:

After a several day move higher on Euro strength, the EUR/USD pair has slipped back downward. Close to looking like a continuation of the down trend the USD is gaining power. If the pair drops below the critical 1.3500 range, the downtrend will be back in full effect. This release is forecast to be 5.01m which is down 0.04 from the last existing home sales figure. I believe this estimate will be inline with the actual figure thus any reaction should be muted. This market is defined by the potential interest rate increase in the U.S. presently. Any other data will play second fiddle until a potential surprise increase prior to the April 28th FOMC meeting.

David Goodboy is Vice President of Business Development for a New York City based multi-strategy fund.

The biggest danger for any trader is excessive exposure. An unexpected price spike can then trigger a margin call that wipes out all the profits generated over months of hard effort. This is the most frequent reason why traders lose money. How can we prevent this from happening? What do we have to know?
Diversification
As there is no such thing as perfect foresight and an unexpected price spike can occur at any time, a trader should always diversify his risk and trade not just one, but two or three ideas at the same time. It is through diversification that he can improve his risk profile – when one trading idea is in the profit, the other runs a loss and vice versa. Overall his performance is smoother and more importantly, this approach reduces the pressure to perform. The trader is then more relaxed and less emotional in managing the exposure of his trades.
How to realize profits?
Whatever the underlying trading ideas are, the method for converting an idea into a realized profit is always quite similar. First, the trader should define a budget in terms of assets that he intends to commit to the trading idea. It is best to divide the budget into targeted position size and additional capacity that he intends to use in case that the market turns against him. I advise that the targeted position size should be only one third of the overall budget of the trading idea – a large two thirds are additional capacity that is kept in reserve. When he opens his position based on his trading idea, he should split the initial trade into three tranches, because there is no way to know the optimal timing for an opening a trade, so it is better to diversify this risk into three opening trades.
How to manage a trade?
In the blog on why butterflies cause cascading margin calls I explained that a trader needs to be on the continuous lookout for unforeseen events that can trigger a cascade of margin calls. When this happens, any trade can turn into a losing position, where the entry price is so far from the current price level that the profit target is out of reach.
Improving price average to turn losing position into a profit
A losing position can be turned into a winning trade by turning the negative development into a positive and take advantage of the new price level to add to the existing position thus improving the price average of the whole position. In doing so, the trader shortens the distance between price average and current price thus increasing the likelihood of a price bounce that is sufficiently large to turn his position into a profit.
Why are price rebounds bound to occur?
In liquid financial markets up to 98% of all the trading is based on speculative positions and the hedging of those positions. These positions being speculative are temporary and any opening trade will need to be closed. When the closing trade happens, this has the effect of inducing a price reversal. Due to the duality of the opening and closing trade the price  movements are never  fully one sided. At some stage, sooner or later, positions will be closed and then the price rebounds occur.
A trader can use these reversals to turn a losing trade into a winning position. The method of increasing the position size to turn a losing trade into a winning position has, however, big drawbacks, which the trader has to be fully aware off.
Smoke and mirrors
Human beings do not find it easy to correctly identify price extremes. They typically interpret relatively small price moves as extremes, where in actual effect the moves are only moderately larger than average. This deficiency is even more pronounced when a trader faces mounting losses. When under pressure, the trader’s internal clock ticks faster and he poles the market price at a higher frequency. Time will seem to flow more slowly, minutes will feel like hours and days like weeks. Under these circumstances, the trader’s natural instinct is to time his trades in terms of his internal clock, but this is wrong. Unaware he will focus on smaller-scale price movements that are out of step with his overall trading strategy. He will decide to increase his bet too early. There might be a bounce back, but this will not be enough for him to exit his position with a profit. If the price resumes its slide, the trader will accumulate losses even faster than before because of the larger position.
A trader needs to take into account that his sense of timing is skewed when under pressure: he needs to lean back and slow his natural instinct and wait for a price overshoot that is in sync with his regular trading frequency. Patience is of essence.
Reducing position size
If a trader has increased his position size to improve the average price of his position, he has to  reduce the size of his position at the next opportunity, when the price rebounds. This is important because he has to free up margin capital, so that he can increase his position, when the price falls back again. By carefully managing the position size during the ups and downs in the price, he earns incremental profit that turns a losing position into a winning trade.
Trader deep freeze
The biggest danger for a trader is the so-called ‘deep freeze’ mode: a trader, who is close to a margin call, freezes up and does not have the mental energy to take decisions and blindly hopes for a price rebound. He can be lucky once, twice or three times, but not on an ongoing basis. Similar to a mouse that is hunted by a cat and cannot move for fright, the same happens to the trader. It is important to preempt this situation. The trader has to set himself a stop loss, where he will get out of his position, whatever may happen. Ideally, the stop loss is never triggered and he is able to maneuver out of any unrealized loss by increasing and decreasing his position size in response to the local highs and lows of the market. In case he fails, he has to have a stop loss strategy in place that limits his overall risk. It is all too easy to close  one’s eyes and hope for the best.

SEC’s Litigation Release:

SEC OBTAINS ORDER FREEZING ASSETS OF RUSSIAN INDIVIDUAL AND ENTITY SUSPECTED OF CONDUCTING ACCOUNT INTRUSION SCHEME
On Monday, March 15, 2010, the United Securities and Exchange Commission filed an emergency action in the United States District Court for the Southern District of New York to freeze the assets of Defendants, located in Russia, responsible for a hi-tech market manipulation scheme. The Honorable Richard J. Holwell, granted the Commission’s request to freeze the Defendants’ assets pending a preliminary hearing, including an account that holds assets in excess of $500,000.

On the News:

Judge freezes assets of accused account hackers
By Reuters
The Securities and Exchange Commission said on Tuesday that U.S. District Judge Richard Holwell had granted its request on Monday to freeze the assets of BroCo Investments Inc and Valery Maltsev, BroCo’s president and sole officer, pending a preliminary hearing.
WASHINGTON (Reuters) – A U.S. judge froze the assets of Russian hackers who allegedly hijacked online brokerage accounts and then placed unauthorized trades in order to manipulate markets.

SEC: Stocks boosted via hijacked accounts
By CNET News
A U.S. federal judge has agreed to freeze the assets of a company being accused of manipulating the stocks of 38 companies listed on the Nasdaq and New York Stock Exchange via compromised trading accounts, the U.S. Securities and Exchange Commission said Tuesday.
The SEC alleges in a complaint filed in federal district court in New York on Monday that BroCo Investments and its president, Valery Maltsev, gained access to investor accounts using stolen usernames and passwords, and placed unauthorized trades through the accounts.

I went to BroCo’s web site to see if they had something to say about SEC’s complaint filed by a district court in New York and I found an Official statement of the President of the company.

It states:

———————
Official statement of the President of the company
Within the nearest time we will explain in detail the situation around sub-broker accounts of our company in Genesis Securities, USA, which allow our Clients to operate on stock market of the USA.

Securities and Exchange Commission of the USA did not arrest these accounts in fact but had just temporarily suspended all operations of Clients until thecircumstances on one of Client’s trading accounts are clarified.

I underline that neither me no BroCo are associated with trading on this specific account.

BroCo as an official sub-broker of Genesis operates on stock market of the USA. We register accounts for all clients wishing to trade on the USA stock market and therefore have commission remuneration. All largest actors of the Russian stock market do apply the same scheme for operations in Genesis.

It means that accumulated omnibus account is registered in the name of our company in Genesis and within the it’s frames our Clients’ accounts are opened. Full procedure for registering Client’s account of this type is introduced on our web-site in details. These accounts are certainly opened officially, we provide Genesis with complete information about holders of these accounts in compliance with Genesis’ demands and procedures as well as all required documents by our Clients.

The account suspected in price manipulation in market belongs to Client of the company. The client performed his own trading and traded at his own responsibility.. Our company together with Genesis only procures technical and brokerage facilities. Thus BroCo company is not associated with trading on above-mentioned account.

In the nearest time we will carefully study all claims of USA Securities and Exchange Commission. I can assure that all claims upon securities are civic and in fact represent request for all relevant and essential documents of Client, it is not a criminal case.

Our lawyers prepare essential papers and today or tomorrow will file the package to Commission.

Russian mass media did not investigate the situation thoroughly and published wrong information. We have already requested our mass media to cease the inflow of not unexamined information.

BroCo works in normal operation. Soon all misunderstandings will be cleared.

Today I will respond the questions of Russian mass media and I am here to answer all questions of our Clients because it is an ordinary case of proceedings between broker and regulating authority which was presented in a not ordinary way by Russian mass-media including web sources.
———————

Francesc

Saxo Properties, a subsidiary of Denmark’s Saxo Bank, plans to launch up to five closed-ended property funds into the British retail market.
Jesper Damborg, the chief executive officer, says the first fund will be launched within a month.

The first product will be a closed-ended fund investing primarily in Copenhagen property, focusing on office, residential, and retail properties. It is expected to close in three months.

Damborg says compared with other major European capitals, Copenhagen has relatively low office rents and vacancy levels.

This translates into stable property returns as well as volatile yield levels by European standards.

Damborg and his team have also been screening Britain’s property market, especially in central London, but following extensive research the group decided to focus on Copenhagen properties instead.

“We have invested in the UK before but it has become too expensive,” he says. “Prices have gone up dramatically in the last six months.”

Saxo Properties says in comparison with more mature international property investment markets, where funding has traditionally been dominated by structured loans, Denmark’s unique mortgage bank system has been less affected by the financial crisis.

Attractive loan options are also still available, provided borrowers meet equity requirements.

Moreover, the group says, the Danish mortgage bank system has not been exposed to structured products on the scale seen elsewhere.

None of the largest Danish banks collapsed and Saxo Properties says it seems that bad debt write-offs have caused no permanent damages to their capital bases.

Hi everyone

The battle for social networking in the retail Forex is getting steam… I would dare to say that the market is already too overcrowded with many sites fighting to become the number one.

The latest player in town is Forex Desk:

http://www.forexdesk.com/

On first impression it looks like they’re going for the exact same business model/concept as Currensee. I’ve received the tip that the same guys behind the trade2win forums are behind this brand new social networking site.

Currently, the Forex Social Networking Market is already packed with Currensee, Myfxbook, MeetPips.com, andmt4stats.com as the leading sites.

Currensee has plenty of cash, Myfxbook has talent – a lot of it! -, meetpips.com has babypips behind and mt4stats has a huge base of potential users interested in MT4.

The battle will be fierce as social networking is still a niche market from the whole retail forex market and it already has at least the same number of primary players than general information Forex web sites market like dailyfx.com, fx360.com, Action Forex and FXstreet.com. Under my modest view, too much race cars for just a few drivers – yet.

In fact, we had at FXstreet.com our own social networking project quite advanced and we decided to withdraw when we saw that we were not adding nothing new to what the market was already providing or was about to provide.

We thought the battle would drain too much resources from us so we better focus our main efforts elsewhere.

Keep me posted about the battle guys!

Francesc