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We have a lot of readers in Cyprus and so many of you will be familiar with the story of Odysseus traveling back to Ithaca after helping to save Helen from Troy and it taking him way longer to get home than he expected.
A great bit in that story is when they sail near the Sirens, who sing so beautifully that any sailors who go past end up sitting there forever and dying. The sailors all plug their ears with beeswax but Odysseus gets them to tie him to a mast so that he can hear the sirens but not fall prey to their charms.
For many people in this industry, US citizens are like sirens. America has the largest population of wealthy people in the world and they love to speculate on financial markets.
Alas, if you give in to their call and offer them OTC derivatives, you are cooked. Like Liam Neeson in Taken, no matter where you are in the world, the US government will look for you, they will find you, and they will extradite you so that they can put you in prison for the rest of your life. There are some companies that still do it, like Hugo’s Way, but they are few and far between.
Prop trading should be different because, in theory, no trading is taking place. You are just being evaluated on a demo account. It’s for the same reason that you can offer the product without regulations in the UK and elsewhere. Long may that continue, eh?
And indeed, the first prop trading firm (that I’m aware of) was TopStep – a US company and one which is still big today. TopStep also only offers futures trading. In some ways that shouldn’t be too surprising, given that – for those who remember them – props are a lot like the futures arcades that existed 20 years ago, just on a way larger scale.
Adding futures is something that other props have done and the general view seems to be that this is to get access to US customers. Is that correct?
Other companies have also offered futures and have typically done so via a separate brand. FunderPro, FXIFY, Alpha Capital, for example, all now have a futures product, offered via a URL that is different to their main one.
Part of this may actually be down to pressure from MetaQuotes. They do not want props to take US clients, so changing tack and having futures is one way around this. For example, FXIFY was told by MetaQuotes to stop taking US clients and one other executive that TradeInformer spoke to confirmed that company told him the same thing.
But that is not true for all firms. For example, FunderPro does not use MetaTrader and so it is hard to see how MetaQuotes could have pressured them into doing it.
Moreover, even if you are in the US or say you are from the US, you can still sign up for CFD challenges from companies like Alpha Capital. So if adding futures was about taking US clients, why would you not restrict – as some props have done – access to US clients on your CFD prop product?
Another possibility is that this is just a different product and something worth offering. Note that unlike ‘real’ CFD providers, the revenue potential for futures if you are a prop is no different to CFDs, because you are just charging a fee for a challenge.
There are also lots of companies willing to partner with firms for this. TopStep, for example, has partnered with Plus500 and lists a total of 14(!) partners that you can take its challenge with.
Keep in mind that a lot of prop firms got rug pulled 12 months ago by MetaQuotes and so they may just want to have a backup product and platform if that happens again.
The other question is whether there is some kind of regulatory set up that would preclude a firm from offering regular CFD services to US clients.
The fact that large props are continuing to offer services to US clients suggests to me that there isn’t.
However, what I think the US regulator does not like is anything like ‘instant funding’ or where you are giving the client some sort of real account.
If you look at the My Forex Funds debacle a couple of years ago, the ‘real’ accounts were what the regulator seems to have had a problem with, rather than any kind of simulated evaluation.
On the other hand, the lack of clarity on what the regulator does and does not approve of means that, for me, it’s not a risk worth taking.
To use a trading analogy, it’s kind of like selling put options. You may be picking up small amounts of cash on the regular but if it blows up, you are cooked and a SWAT team will be smashing through your door sharpish. It’s not worth it. Put some beeswax in your ears and don’t give into the siren’s call.