E-mini Trading: Following The Pfgbest Mess, How Safe Is Your Futures Trading Account?

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Learning to trade e-mini contracts is a major chore in and of itself; but for some traders

, major regulatory failures that have resulted in the loss of their funds. In recent years several major trading firms have closed their doors (or had been closed) due to overall mismanagement, poor regulation, or outright fraud. Clearly, the overseers of the futures industry desperately need to step up regulation and oversight of firms in the futures industry.

Oddly enough, the securities and futures industry are spending large sums of lobby money to ensure that Congress enacts no further regulations on the industry. There would seem to be a disconnect in the current trading environment between the safety of clients funds and the goals of the firms who execute trades for clients.

The Bernie Madoff Ponzi affair, Refco, MF Holdings Inc., PFGBest Let's hope the list doesn't get any longer; these four companies were all in the top 10 futures trading firms in the United States (with the exception of Bernie Madoff), and yet vast amount of client funds came up missing and the firms were closed by the government. Among all these firms there is one common thread: greed at the top level management and lack of oversight by regulators of top management. It's time to dismantle the good old boys club in the money business and start paying attention to the needs of the investing and trading public.

There are mechanisms in place to ensure trading firms comply with existing regulation, but clearly the recent spate of failures in both the securities in the futures industry has not caught the eye of regulators at the state and federal level. It's time for that to change, and it's also time that the government or the industries to enact legislation that protects futures accounts against fraud.

What can you do, as a small trader, to protect your futures trading account?

I highly recommend that all traders consult knowledgeable third-members of the futures trading industry and get their opinion regarding the safety of any given firm.

The last person to know about of firms safety is the broker; management has been telling them what they want to hear.

If you are qualified, research and evaluate the financials of any futures trading company and make sure the audited financials are signed by a well-known and respected auditing firm. (This was a major issue in the PFG downfall)

Trust your instincts, if anything sounds fishy or makes you feel uncomfortable, keep looking for a firm that better suits you.

Call the National Futures Association and check on the number of complaints they have received about a firm you are considering depositing your money.

It has become imperative that we, as traders, make wise decisions about the firm we employ to execute our futures trades. No longer is it wise to shop for the cheapest commission you can receive and base your choice on that variable alone; make sure you give you each firm a thorough once over in regards to their financial stability and the level of complaints they have filed against them. Most firms will have some complaints, you can't please everyone, but if the firm has excessive complaints this should be a red flag.

In summary, I have tried to point out that several firms in the futures industry have been closed due to mismanagement and fraud and choosing a firm from which to trade has become an important variable in the trading process. I have also suggested some measures the government ought to take to ensure client funds remain safe; more federal regulation and some solid insurance of client funds. Finally, I have suggested that ultimately you should thoroughly investigate the firm with which you plan to trade by consulting third party experts and those in a position to objectively evaluate the financial integrity of the firm.

by: David S Adams

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