4x Made Easy®: A Scam or Legitimate Path to Riches?

A few days ago I received an email from a reader who is participating in a 4x Made Easy® (4xME) trading group in Los Angeles. For those unfamiliar with the company offering 4xME, GlobalTec Solutions, represents itself as a Forex software, trading and training provider. Judging from the number of people who belong to Yahoo’s 4xMadeEasy eGroup (8,846 members and counting), the company has succeeded in getting thousands of small investors to spend upwards of $4,200 ($3,000 up front, $99 a month thereafter) to learn how to trade the foreign exchange which, of course, is very misleading, since they're recommending their students trade with dealing desk brokers.

In my response to the gentleman who wrote me from Indian Wells, CA, I referred him to a website that posts trader reviews of brokers, education and training providers and my interest was peeked when the word "Scam" appeared in bright red letters in the column that day next to 4xMadeEasy’s® name. Visiting the online reviews, I came away with the distinct impression that few have anything positive to say about the program.

After I had a couple cups of coffee this morning, curiosity got the best of me so I decided to Google “4x Made Easy”® and made a few discoveries that provide some additional perspective. The citations are dated but I have no reason to believe that they are any less relevant today than they were when they were originally published.

Wize Guys?

Who is James Dicks?

Trading Systems: Show Me the Money

Fox 31 in Denver: Investigative Report

An Attempt to Silence a Lamb Who Thinks He Got Sheared

A visit to 4xMadeEasy.com was also informative. On their home page they provide a disclaimer toward the bottom that asserts that the company does not offer investment advice. Reading the articles above, I guess hype doesn’t technically or legally qualify as “investment advice” otherwise the SEC probably would have issued a cease and desist order a long time ago.

Now if this isn’t enough to convince traders to go elsewhere, get this. When you visit the company’s website you’ll see that they’re promoting brokers who offer commission free trading which means that they are recommending that their proteges sign up to trade through one or more dealing desk brokers. No mention is made of non-dealing desk brokerage as an alternative investment platform.

Novel concept. Hype the dream of easy riches. Sell people an outlandishly expensive program that won’t stand knowledgeable scrutiny and then collect a monthly fee providing useless automated signals.

I’m guessing the company will continue to prosper until 60 Minutes® decides to do one of those wake-up-and-smell-the-coffee investigative reports they’re so famous for. Until then, the principals won’t have to worry about canceling their tee times because there seems to be no end to the supply of people buying into the dream of easy riches.

Is 4xMadeEasy a scam or a path to easy riches? I've pretty much made up my mind. You'll obviously have to decide for yourself.

Invitation: I would be very interested in hearing from experienced 4xMadeEasy® traders who are not only using the program but are producing the kind of no-brainer profitability the promoters lead prospective traders to believe is possible in their introductory seminar. If you are using it, how long have you been using it? Is it as easy as they would have prospects believe? If successful, how successful? If you felt like you got burned, I'd love to hear from you, too.

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Not Using Stop Losses? What’s Your Contingency Plan?

Last night I found myself chatting with a few folks online about the comparative merits of Forex non-dealing and dealing desk brokerage when the conversation turned to a discussion of stop losses - whether to use them or not. One trader asked those in attendance if anyone was trading without using them. Another responded in the affirmative. The exchange that ensued was quite informative so I decided to pass the gist of it along to everyone.

As every experienced trader knows, when you set a stop loss you’re essentially limiting your losses. It isn’t guaranteed to stop the bleeding at market but it will most certainly stop the bleeding. When stops are not used, however, losses can prove to be catastrophic.

The conversation led everyone in the room to think about what they might do if they made a call without using a stop loss and experienced one or more of the following technical problems.

1. Your computer freezes up or crashes.

2. Your cable or DSL provider goes down.

3. Your incoming phone line goes dead.

4. The electricity goes out.

Interestingly, few in attendance had really given any thought to contingency plans so they were all ears when the trader who asked the question started to share what he had done to protect himself.

At one time he reported that he had two computers running - one connected to the trading room via cable, the other via dial-up. If one terminal died or access was lost, he would revert to the other. His thinking about that changed one night, however, when he returned from dinner to discover that the electricity was out. Fortunately, he didn't have any open positions but it made him realize that redundant access wasn't the solution.

A day later he returned to using a single computer. Why? He has his cell phone programmed to speed dial his broker so in the event he decides to trade without placing a stop loss and loses any one or all of the aforementioned tools and utilities, he can immediately contact the broker to close all of his open positions.

This is common knowledge, but to new traders it’s the kind of information that could easily prove to be the difference between success and catastrophic failure.

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Taking a Stab at Calculating Mini Forex Trading Losses

An email I received from an unsuccessful trader yesterday got me to thinking about the daily losses spot traders are suffering so I did a little research. Admittedly, I’m no statistician so if anyone can help quantify these loss projections, I’m all ears. Drop me an email and I’ll do my best to correct the numbers and assumptions I’m about to blither on about. Please cite authoritative sources if you do.

Most everywhere one looks there’s a reference to the “fact” that $1.9 trillion dollars are traded on the foreign currency exchange every weekday. Of that total trading volume, one source reports $600 billion of it as spot trading.

Now here’s where it gets interesting.

Let’s assume that mini trading only accounts for 1% ($6B) of all daily trading. If the average mini trader uses 200:1 leverage and 85% of them aren’t succeeding, then we’re looking at actual trading losses of $25,500,000 a day. If on the average they only use 100:1 leverage, that figure naturally doubles.

Now I don’t know about you, but the math seems to speak pretty much for itself. At the very least it helps me understand why dealing desk brokers are reluctant to talk very much about the hazards of foreign exchange trading. Sure, everyone has that obligatory risk disclosure posted on their site. The same disclosure appears in the contact traders have to sign to before they set up their trading account. But, considering the immensity of these daily losses, is that really enough?

This brings up our exit question for the day.

If mini traders are collectively losing $25,500,000 - $51,000,000 a day, where is all that money going?

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Painting All Dealing Desk Brokers with a Broad Brush?

I received an email a few days ago from a reader who thought it was unfair to paint one of the dealing desk brokers listed in this blog with the dark color being used to paint everyone else. To that I will simply say this.

If any dealing desk broker is concerned about being lumped together with the unscrupulous, then it’s that broker’s responsibility to start educating their trader clients regarding the distinction that should drawn between them and their counterparts.

If a broker offers a fair trading platform and genuinely interested in helping traders prosper, then I suggest that firm consider explaining publically how brokers routinely take advantage of their clients. They may not manipulate the game behind the scenes themselves, but its a stretch to think that they don't know how it can be and is being done.

Such a bold initiative would not only enable them to separate themselves from the herd, it would empower traders to avoid those who misrepresent themselves. and, perhaps most importantly, provide the CFTC and NFA the information they need to shut down the ethically challenged.

Here are a three issues they could start with.

1. What are the mechanics of stop hunting, i.e., spiking and/or stop phishing. How and when does a broker take a trader’s position out?

2. Explain, if possible, how traders and regulators alike can document the fact that trades are being spiked.

3. Explain why, when a trader initiates a market call, a dealing desk broker’s displayed rates suddenly disappear?

If providers really want to wear a white hat, why don’t they lead the charge for industry reform, e.g. fee disclosure and trading transparency for starters. A true non-dealing desk’s fees are fully disclosed. Why aren’t the dealing desk broker’s? If those who refer to themsevles as “white hats” are unwilling to take the initiative to inform traders about the games brokers play, they are obviously part of the problem and I don't have any sympathy for them.

I make no claim to know whether the particular broker the writer mentioned limits its earnings to the fixed spreads it quotes or not. Acknowledging the possibility that their fees are limited to their fixed spreads, if the particular broker mentioned gets off its derriere and starts publically pushing for industry reform I’ll consider revising my remarks.

Instead of buying into the nonsensical idea that this blog isn't being fair, I suggest readers consider the interests of the individual trader instead. Painting dealing desk brokers with a broad brush? You bet. I have no choice because the "white hats" prefer to remain silent.

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In Response to a Continuing Flow of Requests

Since I continue to get requests from traders wanting to know who is offering a non-dealing desk trading platform, the thought has occurred to me that I could be making millions as an introducing broker but that creates a bit of a dilemma. When I decided to publish this blog, I made a promise to myself to create a non-commercial platform traders could rely on to get the straight skinny. As it stands right now, I go to bed with a clear conscience and I plan to keep it that way.

Instead of providing readers with a the names of non-dealing desk brokers, I’ve decided to post the names of those known to operate a dealing desk.. It’s certainly not a complete listing, but that’s where I’m counting on my readers for a little assistance.

If you know of a broker or their shills (introducing brokers) offering commission free trading, fixed spreads, single quotes per currency pair, mini and micro-mini accounts, not listed here let me know. After I’ve had a chance to confirm that they are operating a dealing desk broker or referring traders to one I’ll add them to the list. I will not be responding to individual emails addressing this issue other than to acknowledge the fact that I received it.

1st Direct Futures (IB)
1 World Forex
4XDirect
4XFindMe (IB)
ACM (Alternative Capital Management)
AC Markets
Admiral Investments & Securities
Advanced Currency Markets SA
Advanced Markets, Inc.
AFXI
AKForex
Akmos Trade
AlaronFx
Alpari
Amifx
ANCO Fx
Apex Forex
CagcoTrading
Castle FX
CBFX
CFOS/FX
Charter FX
CMC Markets
CMS Forex (Capital Market Services)
Compass FX
Crown Forex
Currency Connect Trading
dbFX
Deal4Free (CMC Markets)
Delta Stock
DIF Broker
Direct Forex
Easy-Forex
ECN Broker
Enet Speculation
Express Trade
FEXCA
Fibogroup
Fibogroup Canada
Finotec Group
Forex.com (Gain Capital)
Fx Dealer Direct
Forexhsi
Fox Forex
Frieberg Direct
FxActive
FxAdvantage
FXCH
FXCM (Forex Capital Markets)
FXDD
Fx Euro Club
FxInternational Group
FXITG (Forex International Trading Group)
FXINTL
FxInvest Online
FxProForex
FxShell
Fx Solutions
FxStreet (IB)
Fx Trading
FxUniversal
Gain Capital Group (Forex.com)
GCI Capital
GCI Financial
GFT
GFXFOREX
GFX
Global Bank FX
Global Forex Market
Global Forex Trading
Goldberg Forex Group
GTL Trading
High Steet Networking
IFC Markets
IFX Markets
IG Markets
Interactive Brokers
InterbankFX
InterBank Group
Itg Forex
Kerford Investments
Marketiva
MDI Corp
MetexInvest (FXCM IB)
MG Financial Group
Mfgfx
MIGFX
Millenium Penta Futures
Money Forex Financial
Neuimex
North Finance
Oanda
One World Capital Group
One World Forex
Phi Capital Management
Pip Forex
Premier Investment
Premier Trade Forex
ProEdgeFx (IB)
Pro-Forex
Propfx
QuestTradeFx
RCG Fx Trader
RealTime Forex
RealTrade
RefcoFx (Bankrupt)
RJO Fx
Saxobank
Soco Finance
Speed Forex
Spencer Financial
STS Finance
SwissForex
TimesForex
Traders Exchange
Trade Freedom
Trade Monster
TradeStation Securities
Trading Intl
True Forex
Velocity4x
WestCapFx
Windsor Brokers
XpresstradeFX
Zaner (IB)

A few of the aforementioned may be offering non-dealing desk brokerage for high rollers but from what I was able to gather from visits to their web sites, that’s not the case. All are currently offering mini (if not micro mini) accounts, commission free trading, and/or low fixed spreads. As we know, non-standard lots are only traded off-exchange and fixed spreads are a clear indication that the broker controls pricing. Acknowledging the possibility that one or more of the aforementioned may be offering a non-dealing desk, their names will remain until they stop leading naive spot traders to think that they’re actually trading the foreign exchange let alone trading through a non-dealing desk when they're clearly not.

Ultimately, the industry may turn to non-dealing desk brokerage but by the time that happens I’ll probably be living elsewhere - perhaps I’ll come back as a bright green frog. If and when that occurs, the blog will have served its purpose so there won’t be a point in publishing a list of non-dealing desk brokers. Their existence will be well known.

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Are Dealing Desk Brokers Starting to Get Nervous?

Cruising a number of forums today I discovered the following post by a senior member of a forum (I suspect a broker or principal of the forum’s sponsor) named Pipster. It could have been written by me late last summer when I was still operating under the illusion that trading through a dealing desk brokerage house like FXCM, FxStreet, or Oanda, I was actually trading the Forex. That malady was cured by an industry insider last September.

"Oanda has no dealing desk, charges no commission and has low spreads (except during periods of very low volume or very high volitility [sp?]). They have no dealing desk as their system is fully automatic. They make money on spreads by charging you a premium over the price they pay." -- Pipster

As we all know, any broker offering fixed spreads is by definition a dealing desk broker. There’s still another clue and that’s that aforementioned brokerage house, like every other dealing desk broker, offers only one bid and ask price for every currency pair. This isn’t the case when traders view quotes on a non-dealing desk trading platform.

Back before the commercialization of the Internet which has all but replaced snail mail, the telephone, print media, and door hangers, home buyers and homeowners in the United States were pretty much forced to sort through lenders, relying on the print advertising they might see in the local newspaper or receive in their mailboxes. In a hurry to buy or refinance a home, at the most they might compare two or three lenders’ offerings before they submitted a loan application and even then the offerings were difficult to compare.

The Internet changed all that. It’s a rare homeowner these days who doesn’t visit sites like eLoan and LendingTree.to get competitive quotes from dozens of lenders willing to negotiate lending terms. Over time the same thing has happened in practically every retail and service industry. There are now a seemingly endless number of sites offering competitive bids from real estate agents, automobiles dealers, home improvement providers, and even attorneys.

Whether the dealing desk broker community wants to deal with reality now or later, there’s a revolution brewing because sooner or later traders are going to discover that they can do much the same thing trading through a non-dealing desk broker. One platform I’m reasonably familiar displays pricing form 17 participating banks.. The spreads, of course, vary greatly depending on the time of day - during optimum trading hours they can drop to less than a pip. The number of competitive quotes also varies depending on the popularity of the given currency pair.

Pipster points to the fact that trades at Oanda are automated and that this somehow separates them from the fraternity of dealing desk brokers. Just exactly how does this make Oanda any different than any other dealing desk broker? All online trading is automated.

The bottom line for most is a simple matter of comparison and I doubt any serious trader is going to opt to trade through any dealing desk broker once they’ve seen the difference. Unwilling or unable to grasp the intricacies of a professional trading platform, many traders will opt to continue trading in an imaginary world created and controlled by intervening dealing desk brokers. I’m guessing, however, that the smart money is going to migrate to non-dealing desk brokerage. The advantages are obvious.

Time will tell.

Special Note: Over the past few days I've received numerous requests for help so instead of posting responses to them individually, I'll try to address the two predominant issues that have arisen. Regarding the availability of non-dealing desk trading for mini’s and micro-mini’s, please read The Latest Shenanigan. Regarding requests for the names of non-dealing desk brokers, please read Looking for Easy Answers?.

While I won’t tell you who is offering a non-dealing desk trading platform (that would compromise the non-commercial nature of this blog), I will tell you is that apart from having to trade standard lots, the lowest minimum deposit I've seen is $2,000. The lowest margin requirement I've seen is 2% ($2,000). The lowest commission - 1/2 a pip per turn; 1 pip per round.

With respect to minimum deposits, I personally don’t recommend opening an account with the aforementioned minimum. Should you open such an account and lose an early trade, your account might (depending on how early it is) drop you below the minimum margin requirement which would require you to deposit additional funds. I’d personally recommend you avoid the hassle and open an account with at least $4,000 or $5,000.

It’s important to also make mention that as you search for a non-dealing desk broker, you will undoubtedly find a number of brokers using that terminology rather loosely. If they talk about low fixed spreads and/or commission free trading, move on. They aren’t what you’re looking for.

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Dealing Desk Brokers Use Deceptive Advertising to Attract Naive Traders - NFA Struggling to Stop It

I'm not posting this today because I think most Forex traders are taken in by the nonsensical propostion that there is such a thing as "commission free" forex trading, but the National Futures Association (NFA) seems to think that a large enough number of Forex traders are being taken in by the appeal because it has disciplined at least one dealing desk broker who used and continues to use that appeal to generate new clients.

Last November the NFA's Business Conduct Committee issed a complaint following an investigation of Forex Capital Markets LLC (FXCM), a registered futues commission merchant (FCM), dealing desk broker, and NFA member located in New York, New York.

Among other misdealings, FXCM was cited because the it was using promotional materials that included "numerous claims of "zero commissions" and "commission free trading", claims which imply "that FXCM did not maky any money on a trade when, in fact, it makes money on the mark-up or pip spread on trades which was not clearly disclosed in the promotional material."

NFA's complaint appears to be a result, at least in part, to FXCM's continued use of such appeals following an audit that was completed in April 2005 in which the firm was originally admonished. "Yet, FXCM and/or certain of its non-NFA member introducing sales agents ... continued to make some claims of this type in their promotional material."

The firm submitted an Offer in response to the complaint in which, without admitting or denying the allegations in the case, proposed to settle consenting to findings that it committted the violations alleged in the Complaint and also by agreeing to pay a fine of $110,000. The NFA's Business Conduct Committee accepted the offer.

How effective has NFA been in enforcing this disclosure requirement? In less than a hour I was able to find 20 deal desk broker and introducing broker sites characterizing trading in the headers of their sites and/or online advertising as commission free without the required clarification. While all disclose onsite that their profits are imputed in the the fix spreads they quote, they continue to make unqualified references to commission free trading in their META tag descriptions and/or online advertising which appears to be in clear defiance of NFA's recent finding.

Dealing desk brokers and traders have pointed out that the vast majority of brokers display the fact that profits are imputed in their fixed spreads on their sites, but there are two things that should still concern the spot trader.

First, anyone needing to attract clients with an offer of commission free service is just playing mind games. It's like the real estate broker who tells a buyer he doesn't have to worry about his real estate commission because it's a seller cost. You don't need a high school education to understand that the broker's commission is imputed in the sales price. The buyer always pays it.

Second, dealing desk broker profits don't end there. Creating and controlling an artificial, off-exchange market, they're free to take out traders at will.

To see for yourself how many dealing desk brokers rely on this appeal to attract clients, Google forex commission free trading.

June 14, 2006

I just received an informative email from Tom Henderson in Australia and after getting permission to reprint it, I thought I'd pass it along to everyone.

Hi Phil,

I don’t know if this might help you. A little bit of the history as I know it. It's not comprehensive because it's an area I leave alone. I work mainly with traders with some experience, whereas the area you are addressing (I think) attracts the novices because of the "commission free" advertising.

The concept was started by an outfit called DealForFree who came to town here in Australia in 2000. It caused a huge stir, and sucked in a lot of people for all the reasons you articulate in your blog's. The attraction of course was the "commission free" transactions, and it attracted the novices like flies. DealForFree styled themselves as a Euro or UK dealer. They traded under that name for two years and then renamed themselves CMC Markets.

They have been the global engine driver in CFD's which is so huge now it is generating 40% of the total traffic on the physical stock exchange here. The institutions have taken to them like ducks to water.

It is "spread betting". Have a look at their sites and you will probably find many of the smaller brokers you are describing are partnering them and using them as their clearinghouse/banker. The arena is so big it has the two large "recognised" bankers - SaxoBank and ING Global.

The feedback received here is, when trading with a phone-broker or broker-supplied trading platform it is essential to ask if the trade is "DM" or Direct-to-Market. Several of the larger brokers here have similar offerings which are straight-through Direct-To-Market whereas CMC operates its own spread "synthetic market" which mimics the true physical market. Close but not close enough for obvious reasons.

As I read your blog, I realised you were describing what we know here as spread-betting as described above. Check them out. They run it on Forex, Indexes, Shares, anything.

Regards,

Tom Henderson
Australia

Thanks Tom.

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More on the Hazards of Managed Accounts: S.A. Ombud Holds Referring Forex Broker's Feet to the Fire

In what could be the first of many more determinations, Charles Pillai, the Ombud for Financial Services Providers in South Africa, has ruled against a broker who sold investments in Leaderguard, a Forex managed account service provider, to a pensioner. The ruling which held the referring broker liable for the misdeeds of the broker they referred this particular client to could very well be the kind of chilling omen that’s needed to force the bad guys out of the Forex industry worldwide.

If no one refers business to an unscrupulous account manager, he’ll go out of business faster than he hooked up his phone lines. What’s more, if this ruling serves as a precedent, it may very well convince referring brokers to think twice before they recommend the services of any Forex account manager.

Pillai serves as both an advocate (apologist) and mediator for the financial services industry in South Africa. I interjected the descriptive term “apologist” because, unlike mediators elsewhere in the world who don’t represent either party in a given dispute, Pillai obviously soft pedals the role this particular referring broker had in Leaderguard’s demise and referring to him as “naive.”

In an recent interview conducted by Charlene Clayton, appearing in Personal Finance. a South African financial services portal, Pillai explained the extent of the fraud. “Altogether, 1,850 investors lost 95 percent of their investments when Mauritius-based Leaderguard Spot Forex collapsed last year, resulting in South Africa's largest foreign-currency trading scandal. Investor losses totaled R350 million,” he said.

South African’s Financial Services Board has asked Ernst & Young's forensics division to investigate all financial advisers who sold Leaderguard products in terms of the Financial Advisory and Intermediary Services (FAIS) Act. This, he went on to say, could very well result in a number of financial advisers losing their licenses.

Pillai, soft pedaling the problem, says the picture that emerges is that of fraud on a massive scale perpetrated by brokers who naively believed all was well. He went on to say that “the fraudulent acts of the Leaderguard company and the higher-than-normal commission paid to intermediaries should have aroused the suspicions of brokers.”

Ya think?

Not being a lawyer, let alone an international one, I don’t know how this ruling will impact referring brokers elsewhere in the world, but if you were steered to a company offering managed accounts and can document the fact that the investment opportunity was exaggerated or that your account manager is or was incompetent, you might want to talk to a lawyer. Who knows, you might be able to recoup your losses from the referring broker even when, as it was the case with Leaderguard, the company has long since gone bankrupt.

To read the article in its entirety, visit Personal Finance.

To learn more about Forex fraud, specifically as it applies to managed accounts, you're invited to read this earlier posting.

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