The U.S. National
Futures Association (NFA) has expelled a brokerage from its membership after
finding the firm misled customers with deceptive trading results and sales
pitches.
Traders
Edge Inc., based in New Jersey, must withdraw from NFA membership and cannot
reapply, according to a decision released this week. The introducing broker
violated multiple compliance rules by showing trading profits without deducting
commissions and fees, while failing to properly warn customers about potential
losses.
NFA Expels Broker That Hid
Trading Costs from Clients
The case
started when NFA’s Business Conduct Committee filed a complaint against Traders
Edge earlier this year. Rather than fight the charges, the firm agreed to a
settlement without admitting or denying wrongdoing.
The NFA
hearing panel found that Traders Edge’s website displayed trading results that
looked more profitable than they actually were. The firm showed gross returns
without subtracting the costs customers would actually pay, making the
performance appear better than reality.
Even worse,
when the company talked about potential profits on its website, it didn’t give
equal attention to the risk of loss that comes with futures trading. This
violates basic disclosure rules that protect retail investors from misleading
claims.
The
violations didn’t stop at the website. NFA investigators found that Traders
Edge employees made deceptive sales pitches when talking to prospective
customers, breaking rules about honest communication in the futures industry.
“Traders
Edge agreed to withdraw from NFA membership and, thereafter, not reapply for
NFA membership or act as a principal of an NFA Member at any time in the future,”
the NFA commented in its decision.
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Fee Disclosure Problems
Beyond the
marketing issues, Traders Edge failed to properly tell customers about fees
before they started trading. This seemingly basic requirement helps ensure
traders understand the true cost of doing business before they commit money.
The firm
also couldn’t adequately supervise its operations and employees, according to
the hearing panel. This supervisory failure meant problems went unchecked and
likely contributed to the other violations.
Introducing
brokers like Traders Edge serve as intermediaries, connecting customers with
larger clearing firms that actually execute trades. While they don’t hold
customer funds, they still must follow strict rules about how they present
trading opportunities.
The NFA has also recently raised concerns about issues on the other side of the equation, specifically, the creation of fraudulent trading accounts that harm futures brokers. Scammers use fake IDs to open multiple accounts, employing high-risk strategies and attempting to withdraw funds quickly if trades turn out to be profitable.
This article was written by Damian Chmiel at www.financemagnates.com.
