MyForexFunds has been in the eye of the storm of scandal in recent months, since the firm was shuttered by regulators in late 2023. Ongoing legal wranglings with the Commodities Futures Trading Commission have seen several companies operating as ‘My Forex Funds’ receiving court orders to freeze their assets, amid allegations of “fraudulently soliciting customers to trade leveraged, margined, or financed retail foreign exchange (retail forex), and leveraged retail commodity transactions.”
My Forex Funds is now no longer operational, and is countersuing the CFTC, alleging mishandling of the case and ‘bad faith’ actions by CFTC staff. Nevertheless, the company is no longer able to accept new customers.
With these legal cases pending, what has been going on at My Forex Funds? Furthermore, does this spell the end of the so-called ‘prop trading’ industry, and what should traders be aware of in identifying prop trading scams?
My Forex Funds Explained: How It Works
My Forex Funds is a prop trading company, inviting traders to trade on their behalf, rather than directly for the trader’s benefit. It works like this.
A trader is invited to trade through a firm like My Forex Funds. Rather than trading with their own capital on deposit, the trader is allocated capital on behalf of My Forex Funds. The trader never deposits and trades their own money – only the funds of the prop trading firm. When the trades succeed, the prop trading company makes money, with traders often paid out a share of the trading profits in return for their efforts.
Several notable prop trading companies still exist, and do offer some unique benefits over direct trading through a forex broker. There’s no need for traders to have access to their own capital to profit from the forex markets. By trading through the prop company, they are speculating with the prop company’s money, in order to ultimately make profits for themselves.
The benefit for the prop trading company here is that it effectively outsources trading on a commission only basis, often with the discretion to choose to follow or reject the trades of certain traders on their books. Rather than depositing capital, traders are often asked to pay a fee to trade funds on behalf of the prop trading company.
Allegations of Fraud
Since launching in 2021, court documents show My Forex Funds has attracted over 135,000 traders with their offer, resulting in $310 million in fees. However, the CFTC said that while representing themselves as in alignment with their traders, My Forex Funds were “the counterparty to substantially all customer trades.”
Furthermore, the CFTC alleged that My Forex Funds “actively minimizes the likelihood that customers trade profitably by using pretexts to terminate customer accounts”, as well as accusing the firm of “misleadingly assessing commissions…secretly using specialised software to cause customer orders to be executed at worse prices…and handicapping the extremely small number of successful customers to decrease customer profits and increase customer losses.”
A separate action has also been raised against My Forex Funds by the Ontario Securities Commission in Canada, raising similar questions about the operation and nature of the business.
Ceasing to Trade
In September 2023, MyForexFunds posted a notice on their website, informing their traders that regulators had issued orders preventing them from trading securities, as well as freezing assets in company bank accounts. The company has yet to resume trading, with court actions and counter actions still unfolding.
In a twist in the tale, criticisms levelled by My Forex Funds companies towards the CFTC were actually backed up by CFTC Commissioner Caroline D. Pham, who said the allegations were a “serious blight on the CFTC’s reputation and credibility.” Criticising the agency’s approach, she said the My Forex Funds case highlights “CFTC’s deficiencies across governance and culture.”
The criticisms, which were made public by the Commissioner, perhaps reflect some merit in the countersuits of My Forex Funds. But it remains the case that the company has a lot of questions to answer in the process of its legal hearings, as concerns they way it conducted business with its traders.
A Cautionary Tale – Beware of Prop Trading Scams
Unfortunately, reports of sharp treatment from prop trading companies are not limited to My Forex Funds. Reddit and online forums are full of complaints from traders who feel they were spuriously banned from prop trading accounts when it came time for payout, or who are otherwise convinced they were wrongly treated at the hands of a prop trading company.
For what its worth, the CFTC and other regulators worldwide have been taking a hardening approach to prop trading, which sites outside the usual scope of regulation in most cases. Workarounds like giving traders simulated accounts to trade, instead of allowing them to trade directly, have created regulatory question marks that are still working themselves out.
For the average trader, these cases should serve as a cautionary tale. All is not always as it seems in the world of prop trading, and there is the potential to be left out of pocket – particularly when you are paying for the privilege of trading on behalf of someone else.
As always in the financial world, you should apply the smell test – does this sound like a good idea, or does this sound like a possible scam? The merits of prop trading as sold are understandable – but there is still much scam activity around investment and trading in financial markets, and traders are always advised to be cautious about who they are dealing with when they trade with these companies.
Prop Trading – A Verdict
Prop trading companies are not your forex broker. They are meant to be your business partner. In that sense, you should apply much more due diligence to choosing a prop company than you even would to choosing a broker for your own investments. My Forex Funds may now be closed down, but there are other firms out there still operating on a similar model – and no doubt some that are simply out-and-out scams.
It was alleged that funds raised from the ‘fraud’ at the heart of MyForexFunds have been used to buy luxury properties and cars, to fund a multimillionaire lifestyle for those at the top of the company. This is a fortune that the CFTC alleges was built on the back of unsuspecting traders – many of whom it alleges never stood a chance of profiting from their trading.
The safest way to trade is with your own capital through a regulated, trusted third party broker. While this in itself is a risky business, fraught with the potential for losing money at every turn, it’s a whole lot safer than taking any chances with suspect trading companies that very well might cut you out the picture when it’s time to cash out.
In the meantime, regulators like the CFTC seem hell bent on continuing to crack down on prop trading programmes, with further actions expected in the near future. For now, the cases against My Forex Funds continue to work their way through the courts.