Dissecting My Forex Funds' Model: How Did the Prop Trading Firm Generate $310M?

The fraud charges against My Forex Funds brought by the US commodities regulator have shocked the rapidly growing prop trading Industry. Since the charges were filed, the business of the prop trading firm has been shuttered, as its assets were frozen.

The Commodity Futures Trading Commission's (CFTC) lawsuit named New Jersey-incorporated Traders Global Group Inc. and Canada-based Traders Global Group Inc., both operating as My Forex Funds, along with the CEO, Murtuza Kazmi.

Along with the US regulator, Canada's Ontario Securities Commission (OSC) issued a cease order against the local entity and Kazmi, prohibiting them from trading in securities.

The actions against My Forex Funds were not abrupt, as the CFTC CFTC The 1974 Commodity Exchange Act (CEA) in the United States created the Commodity Futures Trading Commission (CFTC). The Commission protects and regulates market activities against manipulation, fraud, and abuse trade practices and promotes fairness in futures contracts. The CEA also included the Sad-Johnson Agreement, which defined the authority and responsibilities for the monitoring of financial contracts between the Commodity Futures Trading Commission and the Securities and Exchange Commiss The 1974 Commodity Exchange Act (CEA) in the United States created the Commodity Futures Trading Commission (CFTC). The Commission protects and regulates market activities against manipulation, fraud, and abuse trade practices and promotes fairness in futures contracts. The CEA also included the Sad-Johnson Agreement, which defined the authority and responsibilities for the monitoring of financial contracts between the Commodity Futures Trading Commission and the Securities and Exchange Commiss Read this Term has been investigating the company for about a year. The American regulator also assisted the Canadian state's counterpart with its investigation.

However, in an official response, My Forex Funds claimed that the actions by both regulators came without prior notice or discussion.

Important Notice 📢

Yesterday we learned that, without prior notice or discussion, a provincial securities regulator in Canada and the commodities regulator in the United States issued orders preventing us from trading securities or accessing funds in our bank accounts.

Until… pic.twitter.com/dKpxmx5axT

— MyForexFunds (@MyForexFunds) September 1, 2023

Serious Charges against My Forex Funds

The US regulator filed severe charges against the two entities operating the My Forex Funds brand and their CEO. The defendants have been accused of fraud.

The lawsuit highlighted that My Forex Funds offered retail customers to become "professional traders" by trading with Traders Global's money against third-party "liquidity providers" and splitting any trading profits. Although the platform assured the public that it makes money when customers make money, in reality, Traders Global operated as a counterparty to substantially all customer trades, not as a liquidity provider.

Furthermore, Traders Global was even accused of minimizing the probability of its customers' profitability with pretexts to terminate customer accounts, misleadingly assessing commissions to reduce customer account equity, and using manipulative software to execute orders at the worst possible prices.

According to the CFTC, the platform allegedly allowed only a "small number of successful customers to decrease customer profits and increase customer losses."

Boom in Business

With the alleged malpractices, the company generated at least $310 million in fees from a customer base of more than 135,000, who signed up since November 2021. The firm reported over $1 billion in user deposits.

My Forex Funds came into existence in 2020 when the popularity of prop trading was exploding. It ran extensive social media campaigns that bombarded potential customers with advertisements, especially on YouTube.

This ad ran everytime I opened YouTube…they even had a different domain mirrored to the main site. I never trusted #myforexfunds https://t.co/FY1MbWRK9B

— H O N C H O (@Honcho_fx) September 2, 2023

Prop trading firms target retail traders, evaluate their trading skills, and hand out the company's money to them for trading. The platforms then split the profits, if there are any. However, the profits were not the only source of revenue for prop trading firms or for My Forex Funds.

These platforms generate most of the income with fees from 'challenges' or the virtual trading that the traders must take to qualify to receive the funds to trade in live markets. The program fee for My Forex Funds ranged from $49 to $4,900. The higher the program fee paid by the traders, the more capital they will have access to.

Further, the profit splits varied from one program to another. My Forex Funds offered profit splits up to 85 percent.

My Forex Funds heavily boasted about its payouts on its social media channels. Its last update on payouts was reported on August 28 when it claimed that it made payouts worth $5,060,475.16 between August 18 and 24. It also lured traders with frequent offers and discounts.

August 18th-24th brought some impressive stats:

💰 Total Payouts Amount: $5,060,475.16
📊 Total Number of Payouts: 4.271
⚖️ GBP/CAD most profitable instrument

Keep it up 🤝#MyForexFunds #fundedtrader #forextrading pic.twitter.com/sCNGM6dz3O

— MyForexFunds (@MyForexFunds) August 28, 2023

My Forex Funds allowed traders to skip the so-called 'challenge'. For that, traders must deposit a sum, and My Forex Funds would match that. For instance, if the trader deposits $100, the prop trading would give them another $100. However, taking such deposits might violate existing regulations; after all, prop trading firms operate without any license.

Although some prop trading firms try to be transparent, the operations of My Forex Funds were not. According to the archived version of its website, the platform offered 100:1 leverage to some traders, meaning it would have used the services of some offshore brokers; no names are mentioned on the website.

"MyForexFunds does not directly solicit customers from Canada. People who register for our programs do so at their own volition," the archived website stated.

The Industry Is Adjusting

Although Finance Magnates approached multiple prop trading firms to know about their business model and their views on the situation at My Forex Funds, none have agreed to share their responses.

However, many prop trading firms, if not all, are carefully making many adjustments. A highlighted change on the website of several prop trading firms is in the language used, with the terms 'virtual' and 'simulated'. Companies like Funded Engineer, Bespoke Funding, and My Funded FX are now calling the challenges "simulated accounts" and the targets and losses "virtual trading targets and losses." These changes indicate the gamification of prop trading.

Another shift is the move towards offering futures prop trading. As one of the CFTC's allegations against My Forex Funds is the manipulation of market data, prop trading firms offering futures can take the feed directly from the Chicago Mercantile Exchange.

Meanwhile, HR startup Deel, a major payments provider to several prop trading firms, is now reviewing the businesses. According to The Information, Deel facilitated at least $72 million as payouts for My Forex Funds customers and is currently under investigation by the CFTC.

With all the rapid developments in the short period, it would be interesting to follow how the prop trading industry shapes in the future.