(1) Gain had custumers (including micro accounts) that were allowed to trade on a 200:1 margin, let us call them kamikaze traders (as they destroy their own accounts and also endanger the broker). Maintaining a 200:1 leverage during the week-end looks a bit dangerous, so the margin was reduced by Gain to 100% on Fridays, triggering margin calls and the forced liquidation of all positions using higher margin. During special events, such as G-20 meetings, Gain would further reduce the leverage to 1:50. Some of their customers claimed that they had not received the e-mails, infroming them about reduction of leverage.
Comment: The NFA should never ever have allowed margin account with a leverage of 1:200.
(2) GAIN used a MetaTrader tool - the virtual dealer plug-in. This allowed them to manipulate slippage in a way that they would keep part of the positive slippage. From the document:
"As a result, from May 1, 2009 through July 31, 2009, customers trading greater than five standard contracts on the retail server experienced $169,502 in losses due to unfavorable slippage, yet never received any gains when favorable slippage occurred."
"Like the retail server, the institutional server also limited profitable slippage (slippage favorable to the customer) to five standard contracts while negative slippage (slippage unfavorable to the customer) was allowed on order sizes up to 100 contracts by default (the maximum volume setting)."
"Although Gain's customer agreement claimed that Gain would make its best effort to execute trades on or close to prevailing market prices, Gain appears to have done this only when the market movement was favorable to Gain."
"The slippage settings that Gain established for the Virtual Dealer Plug-ln on the MetaTrader platform allowed Gain to manipulate the prices that customers received on their forex transactions and allowed Gain to benefit from order slippage to the detriment of its customers."
"Gain represented to NFA that, as of July 31, 2009, it stopped using the MetaTrader platform through its U.S. entity since it did not conform to the then newly adopted NFA Compliance Rule 2-43, which requires that all open customer positions be offset on a first-in, first-out basis. The Rule became effective on July 31, 2009. However, Gain continued offering MetaTrader to its customers through its United Kingdom affiliate, Gain Capital Forex.com UK Limited."
Gain seems to be the bandit and MetaTrader the arms dealer. This just confirms what everybody should know. Trading FOREX via a dealing broker or trading CFDs (which is pretty much the same) is a loser's game. You better give your money to a charity.
The regulator's are "supervising" the scoundrels, after allowing them to enter the game. The NFA should take a look at the British FSA. By introducing a stock trasnaction tax, a large part of the retail business shifted to CFDs. Guess who is making money and who is losing.
Trade currency futures, or if you trade FOREX, choose an ECN (electronic communications network) or STP (strait through processing) broker. Don't sign up with Gain. Don't use MetaTrader.
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