The recent lawsuit filed by the US commodities regulator against My Forex Funds has sent shockwaves through the emerging sector of proprietary (prop) trading. While the lawsuit specifically targeted the platform and its owner, Murtuza Kazmi, for alleged fraud, it has prompted a broader discussion on the practices within the prop trading industry. Several prop trading firms declined interview requests from Finance Magnates in the aftermath of the My Forex Funds scandal, choosing to remain discreet about their operations.
Proprietary trading, commonly referred to as “prop” trading, involves firms providing funds to traders for live market activities. These firms assert that they mitigate the risk of capital loss for traders and share a portion of the trading profits, which can sometimes reach as high as 90 percent, with the traders. While this business model may seem appealing at first glance, it comes with certain caveats.
Traders are typically required to pay fees to prop trading firms to participate in trading challenges. Successful completion of these challenges grants traders the opportunity to trade with the company’s capital, subject to various conditions. Some prop trading firms may also impose monthly subscription fees.
FXStreet’s Senior Analyst, Ian Coleman, elaborated on the varying models employed by prop trading firms, stating, “Prop trading firms attract traders by offering access to larger trading capital than they would normally have. Traders pay a fee to participate and must consistently demonstrate profitability. The profits earned are then shared between the prop trading firm and the trader. While this may sound enticing, there are numerous rules and regulations set by the prop firm that traders must adhere to.”
The lawsuit against My Forex Funds has brought into question whether existing regulations, primarily focused on advertising and bonuses, are sufficient to curb unlawful practices within the prop trading industry. As authorities scrutinize this sector more closely, it remains to be seen whether heightened regulatory oversight will be implemented to protect traders and maintain market integrity.
