© Copyright khedmeh Wall
ARE PROP
FIRMS LEGAL ?
Over the last 6-12 months there has been a lot of controversy
surrounding the online prop firm space, specifically forex prop firms. This has
been due to a number of the largest forex prop firms being shut down by
regulators for their business practices. This has led many traders to question
the legality of online prop firms and whether the bubble is about to burst.
In this article, we’ll discuss the legality of online prop firms, the
regulation in place and what we expect to see in the industry over the next few
years. So, let’s get into it…
The Legality Of Forex Prop Firms
The legality of online prop firms has very much been questioned since
My Forex Funds and The Funded Trader, among others, were shut down by the
regulators. This has led to a discussion in the industry around the future of
prop firm trading and whether the bubble has burst. We very much support this
discussion and ultimately, we want the online forex prop firm space to become
much more regulated and provide a safer environment for traders to grow both
their skills and their profits from the markets. We’re very aware that
currently there is a real lack of information out there regarding the legality
and regulation of online prop firms, We want to clear things up and provide our
take on the industry and how traders can best position themselves for the long
term.
Are Forex Prop Firms Legal?
Currently, online forex prop firms are legal, although there is
lacking documentation and regulation for prop firms to follow. It is not
illegal to operate or trade with a prop firm. However, where most online prop
firms come unstuck is in their business practices and terms of service. Some of
the largest prop firms that I’m sure you would have heard of have fallen victim
to these mistakes over the last few months. This has led to regulators shutting
these prop firms down and potentially taking legal action against the business
owners.
However, this doesn’t mean that online prop firms are not legal – this
just highlights the lack of regulation and guidance – meaning some prop firms
are choosing to operate in a non-ethical manner for their traders, and operating
more as Ponzi schemes.
If you take a look into all of the prop firms that have been shut
down, they were all ‘simulated’ capital prop firms, offering insane profit
splits and operating in a Ponzi style business model. E.G, they needed more
traders coming through the door to pay out the withdrawals from their
profitable traders.
Is The Wider Prop Firm Industry Legal?
What many newbie traders forget is the fact the prop firm industry has
been alive and well for decades. It’s only within the last 6 or so years that
the online model has come to the market – before then, all prop firms were
brick and mortar businesses with a real trading floor for traders. All brick
and mortar prop firms operate in the same business model as Lux Trading Firm.
They provide real trading capital to profitable traders, in exchange for a
profit split. No brick and mortar prop firms offer ‘simulated capital’ to
traders – this is where the online prop firm industry has largely differed from
the traditional legal model.
Typically, the brick and mortar
prop firms will have traders on a trial period on a demo account (as we do at
Lux Trading Firm), before proving themselves and being awarded a real trading
account funded with the prop firm’s capital. At this point, the trader will
have to adhere to risk management frameworks and receive a split of the profits
they make. Their capital is then scaled exponentially when milestones are hit.
This is exactly what we do here with our funded traders, and it’s a far cry
from what the ‘simulated prop firms’ are offering.
Will Online Prop Firms Become Regulated?
We’ve seen the regulators stepping in now on a number of occasions and
closing some of the online prop firms. This alludes to the fact that the
regulators are watching the online prop firm space, and we believe it’s very
likely that the industry will become heavily regulated over the next few years.
This is great news for traders, and for us here at Lux Trading Firm!
The reality is, when regulation
comes, safety comes. Traders will be much safer and be entitled to much more
than they currently get from a lot of the simulated prop firms. We actively
built our business around the idea that the industry will be regulated, instead
of a quick cash grab. We’ve modeled our whole business model in line with what
we believe the regulations will state – so we aren’t anticipating any changes
to the way we operate here!
What Will Happen To Online Prop Firms When Regulation Is Enforced?
We’ve already seen a flavor of what will happen to online prop firms
when regulation is enforced. We expect that:
Simulated capital prop firms will be scrutinized and shut down. This
is largely due to the fact they operate a Ponzi business model. Profitable
traders cost these prop firms money. Therefore, they try to market to
unprofitable traders, make trading harder than it needs to be, and have to
constantly get new traders through the door to pay challenge fees needed to pay
out the profitable traders. This is a Ponzi scheme, dressed up as forex
trading.
Real money prop firms, like Lux Trading Firm, will continue to operate
and report to the regulators. There may be changes to the amount of capital
prop firms are allowed to allocate and new reporting procedures, but beyond
that, we expect no change. This is because real money prop firms operate
exactly as brick and mortar prop firms do, just with less overhead and physical
space needed.
In Summary – Are Forex Prop Firms Legal?
In conclusion, forex prop firms are legal both to own and to trade
with, although largely unregulated in the online space currently. We expect to
see regulation coming and strengthening in the upcoming years. If you want to
stay ahead of this as a trader, ensure you’re trading with a real money prop
firm.
About
Company
We are a leading proprietary trading firm based in London (UK),
specializing in supporting experienced prop traders.
Our commitment is to help traders excel and provide the tools and
capital they need to compete in a marketplace defined by change and disruption.
We are focused on seeking out trading and investment opportunities to
grow our capital in the global financial markets.
Click Here For More Info.:- https://luxtradingfirm.com/
Social Media Profile Links-
The Wall