I suppose what you can do to minimize your risk is keep the bare minimum margin in your account and sweep out profits on a regular basis. Given the huge leverage they provide in the FX market, you wouldn't need to leave too much on deposit with them. By the way, I just re-reviewed Gain Capital's web site and they say the following in the FAQ: "All deposited funds are maintained in segregated accounts and are FDIC insured. Please note that investment products themselves are not FDIC insured, and therefore are not protected against losses." It does sound pretty good, if it does protect against GAIN blowing themselves up. -- ITZ
COMMISSION ADVISORY BEWARE OF FOREIGN CURRENCY TRADING FRAUDS Have you been solicited to trade foreign currency contracts (also known as "forex")? If so, you need to know how to spot foreign currency trading frauds. The United States Commodity Futures Trading Commission (CFTC), the federal agency that regulates commodity futures and options markets in the United States, warns consumers to take special care to protect themselves from the various kinds of frauds being perpetrated in today's financial markets, including those involving so-called "foreign currency trading." A new federal law, the Commodity Futures Modernization Act of 2000, makes clear that the CFTC has the jurisdiction and authority to investigate and take legal action to close down a wide assortment of unregulated firms offering or selling foreign currency futures and options contracts to the general public. In addition, the CFTC has jurisdiction to investigate and prosecute foreign currency fraud occurring in its registered firms and their affiliates. The CFTC has witnessed the increasing numbers and growing complexity of financial investment opportunities in recent years, including a sharp rise in foreign currency trading scams. While much foreign currency trading is legitimate, various forms of foreign currency trading have been touted in recent years to defraud members of the public. Currency trading scams often attract customers through advertisements in local newspapers, radio promotions or attractive Internet sites. These advertisements may tout high-return, low-risk investment opportunities in foreign currency trading, or even highly-paid currency-trading employment opportunities. The CFTC urges you to be skeptical when promoters of foreign currency trading claim that their services or account management will earn high profits with minimal risks, or that employment as a currency trader will make you wealthy quickly. Understanding Legitimate Foreign Currency Operations Generally speaking, foreign currency futures and options contracts may be traded legally on an exchange or board of trade that has been approved by the CFTC. Even where currency trading does not occur on a Commission-approved exchange or board of trade, the trading can be conducted legally where, generally speaking, one or both parties to the trading is (or is a regulated affiliate of) a bank, insurance company, registered securities broker-dealer, futures commission merchant or other financial institution, or is an individual or entity with a high net worth. Where forex firms do not fall into the categories of regulated entities outlined above and engage in foreign currency futures and options transactions with or for retail customers who do not have high net worths, the CFTC has jurisdiction over those firms and their transactions. Warning Signs of Fraud If you are solicited by a company that claims to trade foreign currencies and asks you to commit funds for those purposes, you should be very careful. Watch for the warning signs listed below, and take the following precautions before placing your funds with any currency trading company. 1. Stay Away From Opportunities That Sound Too Good to Be True Get-rich-quick schemes, including those involving foreign currency trading, tend to be frauds. Always remember that there is no such thing as a "free lunch." Be especially cautious if you have acquired a large sum of cash recently and are looking for a safe investment vehicle. In particular, retirees with access to their retirement funds may be attractive targets for fraudulent operators. Getting your money back once it is gone can be difficult or impossible. 2. Avoid Any Company that Predicts or Guarantees Large Profits Be extremely wary of companies that guarantee profits, or that tout extremely high performance. In many cases, those claims are false. The following are examples of statements that either are or most likely are fraudulent: "Whether the market moves up or down, in the currency market you will make a profit." "Make $1000 per week, every week" "We are out-performing 90% of domestic investments." "The main advantage of the forex markets is that there is no bear market." "We guarantee you will make at least a 30-40% rate of return within two months." 3. Stay Away From Companies That Promise Little or No Financial Risk Be suspicious of companies that downplay risks or state that written risk disclosure statements are routine formalities imposed by the government. The currency futures and options markets are volatile and contain substantial risks for unsophisticated customers. The currency futures and options markets are not the place to put any funds that you cannot afford to lose. For example, retirement funds should not be used for currency trading. You can lose most or all of those funds very quickly trading foreign currency futures or options contracts. Therefore, beware of companies that make the following types of statements: "With a $10,000 deposit, the maximum you can lose is $200 to $250 per day." "We promise to recover any losses you have." "Your investment is secure." 4. Don't Trade on Margin Unless You Understand What It Means Margin trading can make you responsible for losses that greatly exceed the dollar amount you deposited. Many currency traders ask customers to give them money, which they sometimes refer to as "margin," often sums in the range of $1,000 to $5,000. However, those amounts, which are relatively small in the currency markets, actually control far larger dollar amounts of trading, a fact that often is poorly explained to customers. Don't trade on margin unless you fully understand what you are doing and are prepared to accept losses that exceed the margin amounts you paid. 5. Question Firms That Claim To Trade in the "Interbank Market" Be wary of firms that claim that you can or should trade in the "interbank market," or that they will do so on your behalf. Unregulated, fraudulent currency trading firms often tell retail customers that their funds are traded in the "interbank market," where good prices can be obtained. Firms that trade currencies in the interbank market, however, are most likely to be banks, investment banks and large corporations, since the term "interbank market" refers simply to a loose network of currency transactions negotiated between financial institutions and other large companies. 6. Be Wary of Sending or Transferring Cash on the Internet, By Mail or Otherwise Be especially alert to the dangers of trading on-line; it is very easy to transfer funds on-line, but often can be impossible to get a refund. It costs an Internet advertiser just pennies per day to reach a potential audience of millions of persons, and phony currency trading firms have seized upon the Internet as an inexpensive and effective way of reaching a large pool of potential customers. Many companies offering currency trading on-line are not located within the United States and may not display an address or any other information identifying their nationality on their Web site. Be aware that if you transfer funds to those foreign firms, it may be very difficult or impossible to recover your funds. 7. Currency Scams Often Target Members of Ethnic Minorities Some currency trading scams target potential customers in ethnic communities, particularly persons in the Russian, Chinese and Indian immigrant communities, through advertisements in ethnic newspapers and television "infomercials." Sometimes those advertisements offer so-called "job opportunities" for "account executives" to trade foreign currencies. Be aware that "account executives" that are hired might be expected to use their own money for currency trading, as well as to recruit their family and friends to do likewise. What appears to be a promising job opportunity often is another way many of these companies lure customers into parting with their cash. 8. Be Sure You Get the Company's Performance Track Record Get as much information as possible about the firm's or individual's performance record on behalf of other clients. You should be aware, however, that It may be difficult or impossible to do so, or to verify the information you receive. While firms and individuals are not required to provide this information, you should be wary of any person who is not willing to do so or who provides you with incomplete information. However, keep in mind, even if you do receive a glossy brochure or sophisticated-looking charts, that the information they contain might be false. 9. Don't Deal With Anyone Who Won't Give You Their Background Plan to do a lot of checking of any information you receive to be sure that the company is and does exactly what it says. Get the background of the persons running or promoting the company, if possible. Do not rely solely on oral statements or promises from the firm's employees. Ask for all information in written form. If you cannot satisfy yourself that the persons with whom you are dealing are completely legitimate and above-board, the wisest course of action is to avoid trading foreign currencies through those companies. 10. Warning Signs Of Commodity "Come-Ons" If you are solicited by a company to purchase commodities, watch for the warning signs listed below: Avoid any company that predicts or guarantees large profits with little or no financial risk. Be wary of high-pressure tactics to convince you to send or transfer cash immediately to the firm, via overnight delivery companies, the internet, by mail, or otherwise. Be skeptical about unsolicited phone calls about investments from offshore salespersons or companies with which you are unfamiliar. http://www.cftc.gov/opa/enf98/opaforexa15.htm
I tried calling Gain Capital right now, but was on hold too long and hung up, probably due to the 4th of July holiday and thinly staffed trading desk. They might have answered more quickly if I chose the close the position now option, instead of the other question option. I found some more relevant info from their web site. At least in the case of Gain Capital, it appears that if you keep you money in the segregated, non-interest paying account, then you have FDIC insurance via Citbank up to $100K. The non-segregated accounts pay interest, but I assume offers you no protection in the event of Gain Capital blowing up. Here's their blurb from the Gain Capital Web site at http://www.gaincapital.com/index.asp?page=DWGDealing#protect Client funds may be held in FDIC insured, segregated accounts. FDIC insurance is available through our banking partner, Citibank, and depending on a client's account type covers up to $100,000 of deposited funds. In addition, GAIN holds Financial Institution Bond and Bankers Professional Liability insurance policies to further protect deposited funds against failure of service, dishonesty, forgery, alteration etc. Client funds maintained in a non-segregated account earn interest on deposited funds not used as posted margin. In addition, clients either earn or pay on overnight rollovers, depending on the direction of their positions. Open trades are rolled forward in the base currency of the position.
Adler, I see in Refco's new account application info that funds are wired into a segregated account. Does this mean that your funds will be protected in the event of a Refco blowup? I've sent Refco an e-mail asking this question too, but probably won't hear from them until next week. -- ITZ
This sounds like something you will have to ask for. It does not sound like this would be the "default" option. I'm still unsure what the charts I'm seeing at FXCM represent. I highly doubt the charts encompass all of the trading in a given pair from around the globe. I doubt if even a majority of the transactions for a pair are on my chart. This whole online FX scene does seem similar to the bucket shops I have read about. Banker
Hello Banker, I think the chart shows no transactions at all, only the bid - ask quotes of this MM, they should not publish any transactions at all; if any; only this MM's transactions. Regards, Sascha
FXCM's charts don't seem to match their dealing prices offered to me on their trading platform. In addition when you look on the trading platform for day's high or low for a pair, it is often times not the same high or low shown on the chart. It's rather odd if you ask me. Banker
Yep. Even more odd is that these guys have 5 pips on the EUR. I doubt one can daytrade successfully against this spread. I would like to keep my hands off all this. I cannot see any advantage of online FX vs. currency futures, maybe except that the cash requirements are even lower.
I'm interested in the interbank currency market because it trades 24 hours a day, and data is available to show the price action and all potential support and resistance points. Futures however don't trade overnight. It's price action will follow the spot market to a large degree though. For me, it'd be easier to follow a price chart of the interbank market, and trade at the current interbank prices, rather than trade futures. The futures price will differ from the interbank price due to cost of carry and time to expiration. However, if my funds are not safe at these forex dealers, I may end up watching the price action on the interbank market, and trading futures off that chart instead. -- ITZ