OANDA Is Not Alone: Regulated Brokers Enter Prop Trading, but Keeping It Offshore

by Arnab Shome
  • OANDA, Axi, and Hantec Markets are now offering prop trading services.
  • Brokers prefer to go offshore to avoid any possible regulatory action in top jurisdictions.
Prop Trading
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Prop trading is becoming very popular among traders despite all the controversies around the model. While many dedicated companies are already operating in the space, many reputed brokers are now jumping in. OANDA is the latest one to launch prop trading under the brand, OANDA Labs Trader.

OANDA, Axi, and Hantec Markets are a few names offering prop trading services and their conventional brokerage services. Interestingly, all these brokerages offer prop trading services under their offshore regulated entities.

Brokers Keeping Prop Trading Operations Offshore

OANDA, one of the extensively regulated forex brokers with a presence even in the United States, is offering prop trading services under its entity authorized in the British Virgin Islands. For Axi, it is its St Vincent and the Grenadines incorporated entity, while Hantech Markets offers the prop trading services under its Mauritius-regulated entity.

So, the pattern is clear: although brokers want a piece of the fast-growing prop trading space, they are only willing to offer these services through offshore entities. And this makes sense, too.

Meanwhile, there were some rumours of OANDA Labs Trader to be a scam. However, those claims turned out to be false.

Prop trading allows traders to trade in leveraged instruments like contracts for differences (CFDs) without risking any capital. However, to qualify, traders need to pass a simulated trading challenge, which, according to the CEO of the prop trading firm FTMO, only has a 10 percent success rate. Prop trading platforms charge a fee to the traders for taking the challenge, and the funding amount depends on this: the higher the fee, the higher the funding.

As the prop trading firms are not handling clients' money for trading purposes, they do not fall under the purview of the existing regulations for retail brokerages.

As Anya Aratovskaya, the VP of Institutional FX Sales and Marketing at Advanced Markets, pointed out: “Regulation-wise, these firms are essentially basic LLCs with integrated e-learning components. Unless a firm starts giving investment advice, making controversial claims, or acting as a retail broker without proper licenses (like My Forex Funds did), it's unlikely to attract regulatory attention.”

According to Aratovskaya, the so-called prop trading model offered to retail traders is technically a trader-funded model.

Although none of the major regulators are imposing any rules on such prop trading businesses, they would likely attract regulatory attention eventually.

Actions against My Forex Funds Cautioned the Industry

The regulators in the US and Canada have already taken action against prop trading giant My Forex Funds, which has generated at least $310 million in fees from a customer base of more than 135,000 since November 2021. The company had to shutter its operations and is now engaged in a legal battle with the two countries' regulators.

However, the action against My Forex Funds can be brushed against the entire prop trading industry, as the company is facing allegations of fraud.

Keeping Disclosures Straight

On its website of prop trading services, OANDA specified that “none of the services provided by us shall be considered investment or financial services in accordance with applicable laws.”

Axi, too, is offering prop trading only to offshore clients, meaning the services are unavailable to clients in its home country Australia, New Zealand, and the United Kingdom. Hantec Markets specified that its proprietary trading entity “does not carry out any regulated activities. Hantec Trader is not a broker and does not accept deposits.”

OANDA went to an extra length to detail its prop trading model. It revealed that the qualified traders on the prop trading platform will be technically treated as signal providers. The proprietary trading models of OANDA will use the signals produced by the traders “in combination with other input variables to guide OANDA's market positioning decisions.”

Prop trading is becoming very popular among traders despite all the controversies around the model. While many dedicated companies are already operating in the space, many reputed brokers are now jumping in. OANDA is the latest one to launch prop trading under the brand, OANDA Labs Trader.

OANDA, Axi, and Hantec Markets are a few names offering prop trading services and their conventional brokerage services. Interestingly, all these brokerages offer prop trading services under their offshore regulated entities.

Brokers Keeping Prop Trading Operations Offshore

OANDA, one of the extensively regulated forex brokers with a presence even in the United States, is offering prop trading services under its entity authorized in the British Virgin Islands. For Axi, it is its St Vincent and the Grenadines incorporated entity, while Hantech Markets offers the prop trading services under its Mauritius-regulated entity.

So, the pattern is clear: although brokers want a piece of the fast-growing prop trading space, they are only willing to offer these services through offshore entities. And this makes sense, too.

Meanwhile, there were some rumours of OANDA Labs Trader to be a scam. However, those claims turned out to be false.

Prop trading allows traders to trade in leveraged instruments like contracts for differences (CFDs) without risking any capital. However, to qualify, traders need to pass a simulated trading challenge, which, according to the CEO of the prop trading firm FTMO, only has a 10 percent success rate. Prop trading platforms charge a fee to the traders for taking the challenge, and the funding amount depends on this: the higher the fee, the higher the funding.

As the prop trading firms are not handling clients' money for trading purposes, they do not fall under the purview of the existing regulations for retail brokerages.

As Anya Aratovskaya, the VP of Institutional FX Sales and Marketing at Advanced Markets, pointed out: “Regulation-wise, these firms are essentially basic LLCs with integrated e-learning components. Unless a firm starts giving investment advice, making controversial claims, or acting as a retail broker without proper licenses (like My Forex Funds did), it's unlikely to attract regulatory attention.”

According to Aratovskaya, the so-called prop trading model offered to retail traders is technically a trader-funded model.

Although none of the major regulators are imposing any rules on such prop trading businesses, they would likely attract regulatory attention eventually.

Actions against My Forex Funds Cautioned the Industry

The regulators in the US and Canada have already taken action against prop trading giant My Forex Funds, which has generated at least $310 million in fees from a customer base of more than 135,000 since November 2021. The company had to shutter its operations and is now engaged in a legal battle with the two countries' regulators.

However, the action against My Forex Funds can be brushed against the entire prop trading industry, as the company is facing allegations of fraud.

Keeping Disclosures Straight

On its website of prop trading services, OANDA specified that “none of the services provided by us shall be considered investment or financial services in accordance with applicable laws.”

Axi, too, is offering prop trading only to offshore clients, meaning the services are unavailable to clients in its home country Australia, New Zealand, and the United Kingdom. Hantec Markets specified that its proprietary trading entity “does not carry out any regulated activities. Hantec Trader is not a broker and does not accept deposits.”

OANDA went to an extra length to detail its prop trading model. It revealed that the qualified traders on the prop trading platform will be technically treated as signal providers. The proprietary trading models of OANDA will use the signals produced by the traders “in combination with other input variables to guide OANDA's market positioning decisions.”

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