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The global financial crisis took yet another turn for the worse on Monday. According to Yahoo! Finance:

MF Global's meltdown in less than a week made it the biggest U.S. casualty of Europe's debt crisis, and the seventh-largest bankruptcy by assets in U.S. history.

The chief executive of MF Global Holdings Ltd. is Jon Corzine. According to The Economist recently, Mr. Corzine is:

Another former head of Goldman Sachs [potentially] running America’s Treasury, Mr Corzine (who is also a former governor of New Jersey) is seen as a long-shot candidate for the job when Tim Geithner steps down, or as a possible future White House economic adviser.

The Economist also mentions what it refers to as "The Corzine put". This cunningly constructed derivative means that MF Global:

Is offering an extra percentage point of interest to investors in its latest bond issue, should Jon Corzine, MF’s chief executive, quit to take a government job before July 2013.

I wonder what MF Global bond holders make of that extra percentage point now? I also wonder what valuation MF shareholders are putting on their holdings today? In view of the current news it seems unlikely Mr. Corzine will ever achieve that position in government, although I suppose stranger things have happened. According to Reuters, ex Democratic New Jersey Governor Jon Corzine:

Has been a major fundraiser for Obama, having donated the maximum of $5,000 that an individual can give for a presidential campaign.  He also held a lavish $35,800-a-head fundraising dinner for Obama at his home in April and raised or "bundled" donations of at least $500,000 so far for Obama's 2012 re-election effort.

Maybe in return Mr. Obama will send some of his own "political capital" in Mr. Corzine's direction one day, when memories have faded a little? Or there again perhaps not. According to The Economist once more:

It is unlikely that Mr Corzine will stage another comeback. On October 31st MF Global filed for bankruptcy after frantic efforts to sell assets or find a buyer failed. The cause of the firm’s demise were trades and strategies driven by Mr Corzine—not least disastrous bets in the market for European sovereign debt, making MF Global the largest American casualty of the euro-zone crisis so far.

The US regulators that are supposed to be keeping a close eye on this sort of thing have issued a statement on the MF Global fiasco. According to the U.S. Commodity Futures Trading Commission:

For several days, the SEC, CFTC and other regulators had been closely monitoring developments affecting MF Global, Inc., a jointly registered futures commission merchant and broker-dealer, in anticipation of a transaction that would include the transfer of customer accounts to another firm. Early this morning, MF Global informed the regulators that the transaction had not been agreed to and reported possible deficiencies in customer futures segregated accounts held at the firm. The SEC and CFTC have determined that a SIPC-led bankruptcy proceeding would be the safest and most prudent course of action to protect customer accounts and assets. SIPC announced today that it is initiating the liquidation of MF Global under the Securities Investor Protection Act (SIPA).

It sounds a lot like it's not just MF Global shareholders who will be forced to undergo a haircut. It sounds like there are some deficiencies in the supposedly segregated accounts of MF Global's customers too.  According to the New York Times:

Regulators are examining whether MF Global diverted some customer funds to support its own trades as the firm teetered on the brink of collapse. It is still unclear where the money went. At first, as much as $950 million was believed to be missing, but as the firm sorted through its bankruptcy, that figure fell to less than $700 million by late Monday, the people briefed on the matter said.

For a closer look at the many billions of dollars involved in the latest Wall Street crash let's turn for assistance to Michael Bloomberg, who is an expert in such matters. According to Bloomberg Businessweek:

MF Global Holdings Ltd., the holding company for the broker-dealer run by ex-Goldman Sachs Group Inc. co-chairman Jon Corzine, filed for bankruptcy protection as it seeks to reorganize after making bets on European sovereign debt. Its broker-dealer unit, MF Global Inc., faces liquidation. The firm listed debt of $39.7 billion and assets of $41 billion in Chapter 11 papers filed yesterday in U.S. Bankruptcy Court in Manhattan.

Once upon a time Jon Corzine looked very closely at the causes of the downfall of Long Term Capital Management, according to Roger Lowenstein in another article on Bloomberg. However it doesn't seem as though he learned very much from that particular piece of financial history. This time around it looks like he's not only thoroughly cooked his own goose, but he's also burned considerable amounts of MF Global Inc.'s customers' money, supposedly safely protected from such abuse in "segregated" accounts. Losing money on the deal is a risk MF Global's shareholders and bondholders were presumably prepared to take. MF Global's customers believed they were taking no such risk. It now seems as though that belief was mistaken.

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It's been in the pipeline for a long time now, but the Trading Gurus are now happy to announce that Ray the Random Robot™ has finally been ported to TradeStation's EasyLanguage.  Ultimately this decision was prompted as much by the announcement of MultiCharts at LMAX, as by the prior arrival of TradeStation Forex and "TS for FX for free". Whilst EasyLanguage has been around for a long time and is in some respects the "industry standard", it's never before been readily useable by newcomers to automated trading with a limited amount of capital.  Although it's still officially in beta testing, LMAX MultiCharts does promise to change that aspect of things for the better, as long as you're not a United States citizen! If you are a US citizen then I'm sure TradeStation FX will be happy to discuss opening an account with you!

Wherever you were born, or currently reside for that matter, the newly minted source code of RRR for EZL is now available for download from the Trading Gurus Community forum. EasyLanguage does some things in a non-intuitive manner, if you're coming to it from another platform for the first time. If nothing else hopefully Ray's stupidly simple example will save someone from tearing out large quantities of their hair trying to work out why their stop orders seem to be getting ignored!

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LMAX have finally overcame some inital teething troubles with their recently revamped historical data feed, and earlier today I was finally able to fire up my copy of LMAX's flavour of the MultiCharts platform. for the very first time. Here's the first thing that met my eyes:

LMAX branded MultiCharts splash screen

LMAX branded MultiCharts splash screen

As you can see, for initial testing I'm using my trusty LMAX demo account! After filling in my user credentials, and then a slight bit of tweaking of the screen layout, this was the result:

LMAX MultiCharts trading platform, set up for trading EUR/USD

LMAX MultiCharts trading platform, set up for trading EUR/USD

Please click the image to see an enlarged version. As you will then hopefully be able to see, charts now quite happily display historical data, and manual trading works fine too. On the left hand side full depth of market information is available, and below that buttons that allow you to utilise complex entry order types including OCO "fade" and "breakout" strategies.

The MultiCharts platform is packed full of other features that you won't find in MetaTrader 4, including a wide range of exotic instruments and chart types. Here's what constant range bars of US 30 year T bonds looks like for example:

LMAX MultiCharts displaying constant range bars for US T bonds

LMAX MultiCharts displaying constant range bars for US T bonds

This very brief overview only hints at the overall power of the MultiCharts platform. We will cover many more of its features over the coming days, including a close look at building automated trading strategies using EasyLanguage instead of MQL4. Note in conclusion that if you're a discretionary trader and you like the look of MultiCharts,  a version of MultiCharts without automation capabilities is available for download free of charge from the MultiCharts website.

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At last we know the answer to the questions posed by FXCM themselves back in August following settlement of charges brought by the NFA, when they revealed that:

FXCM has set aside a $16 million reserve for the…. anticipated CFTC settlement.

Yet again the CFTC have simultaneously:

Issued an order filing and simultaneously settling charges

against FXCM, and they have just issued a press release which states that:

According to the CFTC order, from at least June 18, 2008 until December 17, 2010, FXCM failed to supervise diligently the handling of more than 57,000 customer accounts traded on the FXCM platforms by its officers, employees, and agents with respect to changes in price between order placement and execution on both market orders and margin liquidation orders. The order finds that FXCM’s failure prevented its customers from receiving the benefit of price movements in customers’ favor, but allowed its customers to suffer detrimental price movements. The CFTC order finds that had FXCM diligently supervised its personnel, FXCM would have discovered these problems with its trade integrity and would have had the opportunity to correct them before its customers were deprived of, and FXCM benefitted by, approximately $8,261,937.

Further, the CFTC order finds that FXCM failed to produce certain records promptly in its capacity as a CFTC registrant and thereby required the CFTC to issue a subpoena to attempt to obtain required records from FXCM.

That covers the alleged offences, but what about the headline figure of a fine of over $14.2 million. On that side of the equation the CFTC has this to say:

The CFTC order requires FXCM to pay a $6 million civil monetary penalty and restitution of $8,261,937 to its customers and former customers. In addition, the CFTC order requires FXCM to retain, at its own expense, a monitor to review for three years:

  1. Its trade execution practices and policies as they relate to the change in price between the time the customer places the order and the time the order is executed by FXCM
  2. Its compliance with its restitution obligation.

The "monitor at its own expense" clause explains the "more than" in the title, and apart from tying that number down more tightly that is quite possibly the last such news we will hear for a while regarding sanctions against U.S. public FX brokerages. However there is still much more news to come regarding the settlement of CFTC actions brought in the U.S. courts against a long list of overseas brokerages.

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If you've been a retail FX trader for a while, and you've got a sneaky suspicion somewhere in your subconscious (SSSS for short) that MetaTrader 4 is possibly not the best tool for the job of "FX trading for a living" then the headline above should already have caused you to have taken your eyes off your multiple screens because you've fallen off your swivel chair with the excitement of it all.  This is how LMAX "soft launched" the Multicharts platform for their multi-lateral trading facility (MTF for short) last week:

LMAX MultiCharts is a professional charting and automated trading platform, designed for futures and forex traders.  A key feature of LMAX MultiCharts is its compatibility with the industry-standard TradeStation EasyLanguage.

EasyLanguage studies can be customised, optimised and back-tested prior to their implementation in the real market.

LMAX MultiCharts includes very powerful and flexible tools which are able to handle multi-symbol and multi-timeframe charts.

Many more features are available…

The news gets even better. The "beta launch" itself is due to arrive later today or early tomorrow Greenwich Mean Time, without too much fanfare. After that, and subject to satisfying certain qualifying conditions, from January 2012 you will be able to use your existing automated trading strategies written in TradeStation's EasyLanguage (EZL for short) on the LMAX MTF free of charge. Currently these conditions are:

  • Minimum account balance of $5,000
  • Minimum of 250 LMAX sized lots per month

although this may of course have changed by the time January 1st 2012 eventually arrives.

The news gets better still. If you are currently an EZL trader and you are prepared to help LMAX polish their shiny new platform by acting as a beta tester those minimums will be significantly reduced from the time of launch until the end of this year. Note also that if like me you don't enjoy sitting on a swivel chair in front of multiple screens for hours and days on end, and if like me you are not a big fan of TradeStation's EasyLanguage and therefore currently trade with your existing broker(s) using a FIX, .NET, RESTor Java API, then LMAX already allow you to do that free of charge also, albeit currently still also "in beta".

That was the not inconsiderable good news, but now it is my sad duty to inform you about the accompanying bad news. The only reason that you might possibly have for not already being on the phone to your shiny new LMAX account executive at this very moment is that they speak with an English accent, whereas you speak with an American one.

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According to Michael Greenberg over at ForexMagnates his:

Sources reveal that Gain Capital is about to seal the deal with Interbank FX. No information is yet known and neither company confirmed the information – naturally because Gain is a public company. More details are expected soon.

We have speculated here on the likelihood of continuing consolidation in the retail forex "industry", particularly following the IPOs of  GAIN and FXCM. No doubt the trend will continue for a while yet in the wake of regulatory changes, not to mention the activities of those regulators' lawyers! In all the circumstances it's an interesting coincidence that we mentioned IBFX in passing only this morning. Assuming that the acquisition goes ahead as Michael suggests, perhaps Forex.com will eventually start marketing EAs that don't work terribly well to their customers too? They do operate a dealing desk after all!

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As a couple of our more perceptive readers have recently pointed out to me, Ray the Random Robot's equity curve (the live version of which you can see proudly displayed to the left of this post) has recently suffered an obvious "blip". Here's an enlarged version of where Ray's up to today, preserved for posterity:

Ray the Random Robot's equity curve on September 27th 2011. Spot the "blip"!

Ray the Random Robot's equity curve on September 27th 2011. Spot the "blip"!

There are any number of lessons that you might wish to take away from the fact that after almost 11 months of fully automated live trading (albeit with pretend money) Ray's artificially stupid trading brain has finally come a cropper, and he's somehow just managed to avoid wiping out his entire account by the skin of his shiny metal teeth.

1. There seems to be a slight bug in Ray's "emergency escape" code. His account has recovered from what myfxbook describe as a "73.07% drawdown", but not to new equity highs.

2. Using a Martingale money management system will always ultimately end in tears.

3. According to myfxbook Ray's "profit factor" is currently 1.12, but his "expectancy" is -3.0 pips. How on earth could that come about?

4. After all the recent excitement in the markets in general as well as in Ray's own account he is about to post his first ever losing month.

Ray the Random Robot trades over 100 lots!

Ray the Random Robot trades over 100 lots!

5. As you can see from the list shown above of Ray's trades on September 14th, he much prefers to trade at 1/10 of a lot. However to escape from his dire predicament at one point he found himself trading over 100 lots of EUR/JPY. Ray doesn't recommend that you do this at home!

6. Perhaps most importantly, for the moment at least, Ray has demonstrated how easy it is to create a MetaTrader 4 "robot" that can produce a very nice equity curve for 30 days, 60 days, or even 300 days. Please make sure you don't waste your hard earned time and money buying such a monstrosity on ClickBank, Plimus or wherever, even on the recommendation of your friendly local neighbourhood forex broker. If you're still not convinced of this by Ray's recent results, then please take a look at what happened when BuruTrader blew up for additional evidence.

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Following on from last month's European attack on the City of London a new front has opened up in the war currently being waged to regulate away risk in the world's financial markets. However this time around Britain is fighting back in the courts! Bloomberg reports that:

Britain will sue the European Central Bank over plans to prevent some euro-denominated securities from being cleared outside the 17 countries that share the currency, in the first such move by a government.

In this instance the supposed problem isn't high frequency trading. Rather it's the ECB's desire not to find itself in the position of having to bail out clearing houses for euro denominated derivatives that are not located in the euro zone. According to Bloomberg once more:

Clearing houses such as LCH.Clearnet and Deutsche Boerse AG’s Eurex Clearing operate as central counterparties for every buy and sell order executed by their members, who post collateral, reducing the threat from a trader’s default.

European Union governments have discussed giving clearing houses access to central-bank liquidity as a way to prevent them from collapsing and causing a financial crisis. The European Commission said last year that access to central bank liquidity could be useful in preventing clearing houses becoming a source of risk to the financial system in themselves. It included the idea in proposals it made in September 2010 to push trading of over-the- counter derivatives through central clearing.

The ECB has said clearing activities should take place in the euro region if it is expected to provide such financial support.

The British Government doesn't see it this way however. They maintain that:

The ECB’s policy contravenes European law and fundamental single market principles. The government wants to see this resolved swiftly and without involving the courts but if necessary will not shy away from continuing legal action.

Having said all that, perhaps there is more to this war than merely reducing financial instability?

The development comes as London Stock Exchange Group Plc holds talks with LCH.Clearnet Group Ltd. to buy all or part of the world’s biggest clearing house for swaps, as increased global regulation makes the business more profitable.

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Fresh from agreeing a settlement with FXCM's UK subsidiary, the CFTC has stepped up its campaign in the courts against "unregistered" RFEDs by announcing that it is bringing civil actions against another 11 foreign currency firms. As in their first such sweep a number of those firms are based in far away places such as Belize, the British Virgin Islands and Cyprus. However two names stand out in the CFTC's blacklist of miscreants as being more "onshore" than the others, namely:

City Credit Capital, (UK) Ltd., a United Kingdom company;

and:

Enfinium Pty Ltd., an Australian company;

Both actions have been filed in "the United States District Court for the northern district of Illinois eastern division" rather than in the UK or Australian courts. Enfinium acquired Australian broker Vantage FX last year, and it is the Vantage name that the CFTC cite in their complaint. More recently a significant stake in Enfinium was acquired by China Private Equity Investments Holdings Limited who are listed on the London Stock Exchange's AIM market, and were thus happy to announce recently on the LSE's Regulatory News Service that:

The Board of CPE is delighted to announce that the title "Best Forex Broker in South East Asia" has been awarded to the forex broking arm of Enfinium International Holdings Limited ("Enfinium"), in which CPE recently acquired a 30% stake.

The prestigious accolade, won in competition against nearly 140 other international brokers participating in the 2011 IBTimes Trading Awards in New York City, went to Vantage FX, a Corporate Authorised Representative of Enfinium. VantageFX also collected a "Forex Broker Australia – Excellence Award".

The IBTimes Trading Awards claims to be the most comprehensive annual award series within the fast-growing retail forex market.

In both cases the CFTC alleges that:

Beginning on October 18, 2010 and continuing to the present (the “relevant period”), [the firm] solicits or accepts orders from non-ECPs located in the United States in connection with retail forex transactions and is, or offers to be, the counterparty to these retail forex transactions without being registered as an RFED with the CFTC, in violation of Section 2(c)(2)(C)(iii)(I)(aa) of the Act, as amended, to be codified at 7 U.S.C. § 2(c)(2)(C)(iii)(I)(aa) and Regulation 5.3(a)(6)(i), 17 C.F.R. § 5.3(a)(6)(i).

and that:

Venue properly lies with the Court pursuant to Section 6c(e) of the Act, as amended, to be codified at 7 U.S.C. § 13a-1(e), because [the firm] transacts business in this District and certain transactions, acts, practices, and courses of business alleged in this Complaint occurred, are occurring, and/or are about to occur within this District.

Whilst Vantage FX may not be registered in the U.S. as an RFED, they are registered with the Australian Securities and Investments Commission. The Vantage FX name is even registered here in the UK as well, although this is just a licence to use the brand and the two companies have no other legal connection. Whatever else they may be, CPE/Enfinium/Vantage are certainly not a run of the mill offshore bucket shop. Neither are City Credit Capital (UK) Ltd for that matter. They too are currently registered in the UK with the Financial Services Authority, and on their website they proclaim that:

The senior management team at City Credit have worked across the globe and have been drawn together from some of the world's premier financial institutions including HSBC, Citigroup and Société Générale.

It looks as though neither Enfinium or City Credit are rushing to follow in FXCM's footsteps and cough up a few hundred grand to settle matters with the CFTC. Meanwhile here at the Trading Gurus we're eagerly waiting to discover how these actions taken by the CFTC in the US courts might result in sanctions against offshore FX brokers that are properly registered within their own jurisdictions and who aren't so eager to reach a quick settlement. In their latest press release the CFTC has this to say about their first batch of court actions:

With respect to the similar actions filed in January 2011, 11 of the 14 defendants have either settled the charges or defaulted, and the charges against the remaining three are pending.

The CFTC strongly urges the public to check whether a company is registered before investing funds. If a company is not registered, an investor should be wary of providing funds to that company.

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At the request of one of our loyal readers we've just opened up a new section on the Trading Gurus community forum devoted to Artificially Intelligent Trading.  As other loyal readers will know, here at the Trading Gurus we love Ray the Random Robot and his particular brand of Artificially Stupid Trading. However we're also very open minded, not to mention modest! Apart from anything else we're keen to discover how other sorts of "robots" go about earning their keep. Some interesting debates have already started on the forum, where Pippa has recently revealed some very interesting news.

Starting on October 10th 2011 the Stanford University School of Engineering is running:

A bold experiment in distributed education, "Machine Learning" [and "Introduction to Artificial Intelligence"] will be offered free and online to students worldwide during the fall of 2011. Students will have access to lecture videos, lecture notes, receive regular feedback on progress, and receive answers to questions. When you successfully complete the class, you will also receive a statement of accomplishment.

Ray is certainly very interested in learning some new trading tricks, and he wondered if you might be as well. Here's a video to give you some idea about what's on the curriculum:

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