Trying to Sue Your FX/CFD Broker? In Israel It Might Cost You Dearly

The Tel Aviv District Court rejected an Israeli trader's claim that Atrade, a local subsidiary of AvaTrade, profited from client

avaEarlier this month, the Tel Aviv District Court rejected a lawsuit claiming that Atrade, an Israeli subsidiary of Dublin-based AvaTrade, profited from client losses. In addition, the judge ordered the plaintiff, a businessman from the restaurant field, to pay the sum of NIS 75,000 in compensation for legal expenses to Ava and the other defendants involved in the case.

According to the lawsuit, the plaintiff approached an agent of Atrade in February 2010 in order to invest some of his savings in foreign currency. He argued in his statement of claim that the agent and the other defendants presented him with multiple false representations that caused him great economic damage. The trader said that the firm has a conflict of interest and that its business model is based on profiting from the losses of its clients.

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The main allegation in the case was that the broker actually stopped the plaintiff’s positions in a number of cases, not according to the legal agreement with the client, and thus supposedly prevented him from getting “back into profit,” meaning he probably got margin calls several times. He claimed that if his positions had not been stopped, his profit would have reached $683,000. The argument between the two sides was about at what time, according to the legal agreement, can trading be stopped in his account.

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After listening to expert witnesses from both sides and receiving a description of Ava’s risk management and hedging systems, the judge rejected the plaintiff’s claims. In the verdict the judge said: “It is not possible to determine that the business model of Atrade is based on client losses. It is also not possible to determine that Atrade has an interest that the plaintiff or any other specific clients would lose money with regards to a specific deal.” The judge also rejected the argument that the plaintiff was misled, or that the damage was caused by misrepresentation.

Upon examining the verdicts in this case, it seems the trader had made several mistakes in understanding the situation that led him to lose money. Firstly, he probably did not read the legal trading agreement, as most brokers make sure to cover themselves from allegations of misrepresentation, and once he signed up with the company it is binding. Secondly, he did not seem to understand how margin calls work and asked for profits based on hypothetical trades made in retrospect -something no court will approve. And lastly, he failed to understand that in a court the burden of proof is on the accuser, and in a lawsuit that involves highly technical and complex financial terms most judges will more than likely reject the claims unless the plaintiff has an airtight case.

New financial trading regulations are expected to be implemented in Israel by the end of the quarter, including regulations requiring brokers to explain and specify exactly how they make their profits. On Tuesday, July 29, Forex Magnates attended the Finance Committee meeting in the Knesset for the final approval vote, but due to a very lively and long discussion on a controversial law relating to the skyrocketing real estate prices in the country, the vote on the FX/CFD trading regulations got postponed to a yet undetermined date.

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