There has always been some paranoia in retail FX about the possibility of being ripped off by the platforms. Many of these complaints were risible, insisting that price could be deliberately spiked by the platform to take an unfortunate trader out of his tiny position. However, the publication of the complaint against Gain/Forex.com has given further impetus to the paranoia (National Futures Association serves complaint to Gain Capital).
Some of the comments received by theweeklyFiX have even been critical of the NFA itself, touting a bizarre theory that the publication of the report was delayed till after the US House of Representatives passed Dodd/Frank. Yet Dodd/Frank didn’t, and never was going to, cover retail FX.
One particular blog accuses the NFA of incompetence but does go on to quote the CFTC in describing the regulators’ lot: “The Commission has been in a perpetual game of technological catch-up. Put simply, we learn of technological innovation after the fact and are left to consider the impact of trading methodologies, such as high-frequency trading, after it has had a widespread effect on the markets.”
The NFA is quite clear that there must not be any discrimination between clients – from which we would infer that client profiling is not allowed. The NFA is also mandating that clients get price improvements on executions.
Whether or not the NFA’s complaint against Gain is upheld, one thing is clear: by going after Gain – one of the leading retail FX brokers and one of the founding members of its own FX advisory committee (Retail gets a say in regulation at NFA) – the NFA is showing that it is willing to go after anyone. And that can only be to the eventual benefit of the market.
Other US platforms are taking advantage of Gain’s predicament. ODL’s announcement of its conversion to NDD, if an example of this, is a subtle one. Far less subtle is a message from Todd Crosland, chairman and president of the Interbankfx platform that, while not mentioning any competitors, picks this precise time to tell the world: “We do not condone abusive margin, liquidation and price slippage practices – and will never arbitrarily change or adjust leverage and margin practices. Furthermore, our customers will never be subject to intentional delays, regardless of lot size.”
One last thing that makes little sense about the complaint is the tiny financial reward for such massive reputational risk. The figures that Gain’s clients are alleged to have lost ($425,000 through Friday margin changes over three particular dates and $269,502 in slippage over the three months in 2009 that the NFA audited) are significant to clients but trivial when compared with the company’s net income of $42.5 million for 2009. If the accusations turn out to be true, it was a horrendous trade for Gain.
