How Do Brokers and Prop Firms
Really Make Money?
Let’s break down the business models of brokers and prop firms
My Forex Funds
In case you’ve not heard the latest.
US and Canadian regulators recently shut down online prop firm MyForexFunds and froze all bank accounts…
Initially, the CEO responded on Twitter and made it seem like a big misunderstanding.
But then out came a press release from the CTFC… Which makes for pretty unpleasant reading. Here are some highlights:
- Using specialised software to cause customer orders to be executed at worse prices than appeared to the customer at the time.
- Handicapping successful traders to decrease profits and increase losses.
- Transcripts of messages between employees discussing ways to stop traders from winning. “This guy will take over 250k from us”
- Then talking presumably about turning on the slippage.
“I don’t know if that will stop them from being profitable”
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This guy on YouTube does a pretty good job of breaking it all down. (Thanks to Chris for posting this one in the member’s dashboard.)
Anyway, it appears as if this firm were total crooks. They weren’t transparent, weren’t acting in good faith, and weren’t playing by the rules. Legitimate brokers have to be regulated, they need to play by the same set of rules. Rules like best execution apply:
(1) A firm must take all sufficient steps to obtain, when executing orders, the best possible results for its clients taking into account the execution factors.
You can’t just add slippage at the flick of a button! It makes it even more important to check you are trading with a regulated firm. Regardless of how that trading is packaged.
On the same thread, I recently did an ‘emergency podcast’ discussing just how prop firms and brokers make money.
I break down the business model of brokers, old-school prop firms, and the new online prop firms.
Check it out here.
*Disclaimer, This is just my understanding of it from 20+ years as a trader and a good network of contacts on both the broker side and the prop side. I don’t work for any.
What a story.