Introduction: Who Am I and Why You Should Listen
This is an article about the forex industry from a Wall Street veteran and what happened with "My Forex Fund." So first of all, who am I, and why should you listen to me? I'm the CEO of MyForexBuddy.com, but I've also been on Wall Street for over two decades, starting on the sell side.
Back when I was 16, I did wealth management, private equity, and then trading for Prop Firms, hedge funds, and more. This is why I have inside knowledge of how Wall Street operates, and I want to dispel a few misconceptions that are happening due to the ignorance of most people who have not been part of the insider circle to understand what's going on behind the "My Forex Fund" situation.
The Problem: Lack of Broker-Dealer License
The biggest issue with what happened to "My Forex Fund" is that they made a critical mistake. They vertically integrated and started executing trades without having a broker-dealer license. In the United States and North America, you're not allowed to execute trades without a broker-dealer license, and that's the actual law they broke.
They have also engaged in morally reprehensible practices, but these actions weren't illegal. Let me explain what's happening in this industry and dispel a few myths.
A-Book and B-Book Trading Models
Alright, so number one, A-book and B-book.
A-book and B-booking have existed for a long time in the forex industry and in every other industry. Let me briefly explain what they are. A-book is when you pass the order from the trader onto the actual exchange. Since most traders don't know how to trade, many of them are essentially gambling. The exchange doesn't have to pass on your order to somebody else to take the other side of the trade.
So, if you're buying something, somebody needs to sell something in an equal amount. It's a zero-sum game, meaning both parties think they're doing the right thing, but one of them will soon find out they made a mistake when the price moves against them.
Now, with brokerages, they've figured out that since a lot of people who join these platforms are novice traders, they don't need to pass on your order to somebody else to make money. They can simply absorb the risk and take on the order, providing you with liquidity. This means they take the other side of the order, and that's called B-booking. They basically say, "Most people are not good traders, so we'll just take the other side of the order without passing it on to the open market. We'll do the inside deal within our environment." There's nothing illegal about this because why make somebody else rich when you can make yourself rich? Why pass on the order to an open pool of sharks when you can handle it yourself, right?
So, a few people who actually dedicate years, not months, to learn how to trade have a chance of becoming successful, and those people get A-booked. A-book means that these people are good, and nobody wants to trade against them. The order gets sent into the open market, where they trade against other traders, other exchanges, and other big players.
So, this practice has been going on for a long time. You can read an excellent book called Reminiscences of a Stock Operator about bucket shops and all that from the 1920s and 1930s.
The Morality and Legality of "My Forex Fund"
So, what's going on with "My Forex Fund"?
They were indeed engaging in these practices, but the illegality of their actions wasn't about them taking the other side of their traders' trades. The illegality arose when they took North American traders and executed their trades without the proper license, and that's what led to their downfall. So, that's why the CFTC (Commodity Futures Trading Commission) got involved, and now they're in trouble.
Benefits for Retail Traders
The honest take.
The honest take is very simple: Most old-school Prop Firms on Wall Street would require you to present a track record just to be considered for a job. This track record means you would have to show them at least six to twelve months of profitable trading for them to even think about bringing you on board as part of their trading team.
Now, companies like FTMO and others have simplified the process for retail traders to enter the world of Wall Street. What do I mean?
Well, if you're coming from the internet with zero track record and essentially nobody knows you, why would someone give you a hundred thousand dollars or more to trade? You haven't shown any track record, passed any interviews, or done much of anything except a week or two of trading where you took a few trades - five, ten, twenty trades. Suddenly, you think you're entitled to handle hundreds of thousands or even millions of dollars for trading. That's quite an audacious expectation, don't you think?
The Reality of Payouts
That's why the prop industry developed a model where they would continuously monitor you, and they would B-book you until they see that you are good enough to be able. What I mean by that is, for example, if you're someone who bought a trial account and passed all these stages, but you did it in just five or ten trades, what now?
Now, let's say you're funded for a hundred thousand. A Prop firm has a choice. Are they going to A-book you or B-book you? In other words, are they going to pass your orders through the exchanges, where you'll compete in the open market and make money for the Prop Firm? Or do they want to hire you as a consultant first and continue observing you for a bit longer, perhaps a month or two or three, until they're confident enough that you are skilled and can consistently deliver profitability, benefiting both you and the firm?
So, if you passed a Prop Firm challenge in just ten trades within a week, it doesn't tell me much about your ability. Maybe you got lucky, caught an upward trend, for instance, and rode it up. But when the trend changes, you might blow up the account, right? To truly evaluate your trading skills, I need to observe you through all market cycles since you're someone from the internet with no prior track record. This is how it works. You have to be tested to prove your competence.
The testing phase is the B-book phase. During B-book, you provide signals, and the firm either takes those signals and executes on your behalf or merely observes your performance.
Here's the good part: whether the firm takes your signals or not, when you're right, you still get paid. This is why the Prop Firm industry on the internet remains an excellent opportunity for retail traders to achieve financial success. There's currently no other vehicle that offers as much potential for a small trader to make substantial money as trading does within a Prop Firm framework because it grants access to capital.
It doesn't matter whether it's virtual or real capital, or whether you're A-booked or B-booked. You still get paid at the end of the day. After being tested for a month or two or three and demonstrating your ability to make money consistently, the firm will eventually stop monitoring you. They'll say, "Okay, this trader is skilled enough to trade independently, and we don't need to cherry-pick their trades anymore. They're not novices who need our constant supervision."
That's the A-book phase. The wonderful part is that whether it's A-book or B-book, you still get paid.
Opportunities for the Little Guy
What happened with "My Forex Fund"?
First and foremost, "My Forex Fund" broke the rule of not having a broker-dealer license.
Secondly, they allowed US and Canadian traders to trade certain instruments that are not permitted for United States and Canadian (North American) traders, such as CFDs, gold, silver, and indices through CFD vehicles. These traders are only allowed to trade futures, but that's a whole different story.
Now, let's get to the point. "My Forex Fund" was engaged in a lot of morally questionable practices. They were potentially cheating their customers using scripts on the back end with MT4 or MT5 platforms and similar methods. This is both morally wrong and possibly illegal, although the exact nature of their actions isn't entirely clear.
The biggest issues were that they were operating without a license and possibly doing things on the back end to harm their traders. However, it's worth noting that they were still paying and supposedly had a high-ranking reputation. Many people did make money with them, and that's the bottom line.
Honestly, if you find a good Prop Firm—whether it's mine or any other reputable Prop Firm—you can get paid for your services, whether you're B-booked as a consultant or a signal provider. You have the potential to become an A-book trader and grow into a professional. Alternatively, if you're someone with trading experience and a track record, you might get A-booked right away. Some of our traders manage two million dollars because they can demonstrate their ability and have a decade of experience in the market. I don't need to babysit them. However, if you're someone who just stumbled in from the internet trying to make a quick buck, this model can work for you as well.
The Impact of Regulations
Now, let me provide you with another quick reality check.
For those who don't understand how things work in reality on Wall Street, here's the deal: Nobody pays you every 14 days, every seven days, or even every month when you're a trader. You get paid quarterly, based on your quarterly performance. The entire Wall Street operates on quarterly performance, which is why you have quarterly earnings reports and all that corporate financial jargon you're familiar with.
The same principle applies to traders. When I was working for a Prop Firm, I would get paid once a quarter based on my quarterly performance. Why? Well, because anyone can get lucky for two weeks and get paid.
That's why it's advantageous for retail traders that the competition is so intense in the realm of internet Prop Firms. They offer seven-day payouts, instant payouts, 14-day payouts, and the like. You can get lucky and turn your initial investment of a thousand dollars or even just 500 dollars into 10 grand. There's nothing quite like this anywhere else, whether it's on Wall Street or elsewhere. If you have the knowledge, if you dedicate time to mastering the craft, you have a vehicle that can turn 500 dollars or a thousand dollars into 10 grand within a week, and you'll receive your payout.
On Wall Street, at a major firm, you'd have to pass an interview, present a successful track record of trading for at least a year. How many of you have a track record of 12 months or more? Very few, right? So, if you've been trading for just three, four, five, or six months, and you get lucky, you have the potential to earn a significant amount because you caught a trend for 14 days or even seven days, and so on.
Conclusion: Empowering Independent Traders
Before you start panicking about "My Forex Fund" or similar situations, realize that this entire industry is still skewed in your favor. Prop firms, in particular, don't benefit from paying you every seven days only to have you blow up your account in the next seven days, leaving them with your losses. It's not a sustainable model.
So, in reality, this industry is still very much geared towards helping the little guy, the retail trader, and empowering them to succeed in the world of trading. In return, we ask for loyalty. Once you display certain criteria of success, such as a track record and a generally upward-sloping equity curve (it's never a straight line up, but as long as the trajectory is positive), we love to identify these talented individuals and move them to the A-book side of things. Then, of course, we aim to scale up their trading, which benefits both the trader and the firm by earning more money.
This has been a lengthy article, and if you've stayed till the end, congratulations. If you haven't, well, you wouldn't even know what I'm talking about right now. But that's the reality of things.
It works for the little guy. If you have the tenacity for this business (which is undeniably tough), it presents a remarkable opportunity to turn a small amount of money into a substantial sum until regulations catch up. Believe it or not, a similar scenario unfolded in the forex broker industry from the early 2000s onward. It was a wild, unregulated frontier, much like the current situation with trading platforms. Then regulations arrived, and let me assure you, they rarely favor the little guy.
Regulators are not interested in making the little guy rich because they prefer individuals who conform and work as obedient office bees, not independent traders capable of earning tens of thousands of dollars in a week from a modest investment.