Wednesday, September 17, 2008

My forex broker is an offshore broker in Cyprus

My forex broker is an offshore broker in Cyprus
. Anyone who chooses to trae the forex market (online currency trading) as a retail investor will most probably use a broker as a middle man to facilitate trading with similar quotes to what the market makers are giving out.

I recently received this email from a forex broker which will be of particular interest to forex traders wishing to trade through a broker regulated in the US by the FDA.

"Our industry's regulating agency, the National Futures Association ('NFA', has proposed new financial requirements for every Forex Dealer Member [ie a forex broker]in their 'Request for Comments on Forex Proposals, ted June 19, 2007, the NFA' proposed requirements call for the following:

= All FDMs must maintain at all times a net worth of $5 million;
= Larger FDMs, particularly those that have a dealing desk, could potentially face net excess capital requirements significantly higher than the minimum under the proposed new rules;
= Where appropriate, the NFA may require an FDM's annual financial statement to be certified by an independent public accountant.

We believe the NFA is proposing these requirements because of the troubling number of insolvencies and near-insolvencies that have recently plagued the forex industry. According to the NFA:

In 2003, a Forex Dealer Member misappropriated almost $2 million in customer funds, driving the company into bankruptcy. (The CFTC is currently attempting to salvage some of the customers' funds.)

Since March of this year, eight different FDMs have fallen under the 'early warning' requirement of $1.5 million.

More recently, NFA took a Member Responsibility Action ("MRA") against an FDM whose liabilities exceeded its assets by over $1 million.

Industry-wide, there is now concern that some Forex Dealer Members may be unable to meet their financial obligations to customers in the event the increased capital requirements take effect.

A review of the current net capital positions of the 43 Forex Dealer Members available on the CFTC web page clearly demonstrates that this concern is justified.

As you can see from the financial data compiled by the CFTC, FXCM reports an adjusted net capital of over $44 million—far greater than the proposed financial requirement.

Based on the most current available CFTC financial data, at least 22 FDMs would not be able to meet the new $5 million minimum net capital requirement. These firms are currently reporting net capital levels below $5 million.

If the new capital level is imposed, these firms will either have to obtain more capital or close down.

Because larger brokers may also face higher capital requirements, FXCM believes that several of these larger firms may also be unable to meet the new requirements, even though they presently have in excess of $5 million in adjusted net capital.

In the event that some of these firms close down or worse, are shut down by the NFA—we are concerned that customer funds, or at least their timely and orderly repayment, could be jeopardized.

We realize that many forex traders have accounts with multiple forex brokers. That is why we advise you to make sure all your trading accounts are held at firms that are adequately capitalized.

If you have an account with a possibly endangered firm, we believe, depending on when the NFA proposal takes effect, that the time may be fast approaching to consider moving those funds while the opportunity still exists.

Our industry is changing, and the new proposed regulations are intended to put every FDM, and the industry itself, on a more secure financial footing.

We welcome the NFA's proposed changes because the effect will ultimately lead to clients trading through regulated brokers that are better capitalized or have access to greater financial resources.