The way that most CFD firms approach compliance can be boiled down to two different methods.
1 – There is a rule and we must try to adhere to it
2 – There is a rule so let’s see what happens to us if we don’t adhere to it
You may be surprised to learn that a lot of companies rather like the second approach.
For example, South Korea actually has fairly strict rules on CFDs. But if you aren’t based there, make a Korean site, and do other stuff to make it ‘easy’ for clients in the country to trade with you, nothing very bad seems to happen to you.
One country that is an exception to this is the US because if you don’t adhere to their rules then, to paraphrase the comedian Russell Peters, you’re gonna get hurt real bad. The US will send their SWAT team over to the Comoros to try and find you.
Or do they?
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My impression has always been that the US is not worth targeting offshore at any cost, even if there are some outlier firms willing to do it.
A lot of the time it’s actually Americans who do it. It’s not that unusual to see people in the US getting caught, who have set up a ‘broker’ in St Vincent and the Grenadines (or some other unregulated jurisdiction). They use that company to get loads of money in via a PAMM-type account. Then they blow up the account and do a ‘rev share’ with someone up the food chain.
The CFTC also has a ‘red list’ of companies that are taking US clients illicitly.
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However, most of them appear to be pure play scams because the URLs don’t work. What that usually means is that it’s a multi-brand operation. Someone sets up a URL, uses it to scam people for a while, then moves on to a new brand / URL when the ‘heat’ gets too intense.
These two types of ‘businesses’ are not the same as someone running a broker and taking clients via some sort of reverse solicitation or underhand marketing, which is what is more interesting. But here too there are some companies still willing to take on the risk and act as a regular broker to US clients.
One of the most popular ones seems to be Hugo’s Way.
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This broker is one that has popped up a lot from readers over the years. I found them weird because they were in St Vincent and the Grenadines and obviously taking US clients and yet for a really long time they were able to keep operating using MetaTrader.
At some point in 2023, maybe because of the regulatory changes in St Vincent and the Grenadines, they moved to the Seychelles. However, they don’t actually have a license there, just a company. They also lost access to MetaTrader and now offer some weird, copy version of it called MT Cloudtrader.
Deposits are only via crypto (surprise) and the company is totally anonymous, so it’s hard to figure out who the owner is.
Something that’s interesting about Hugo’s Way is it was launched in 2018, which is the same year that another broker called JAFX went out of business. JAFX was also taking clients from the US and the CFTC went after them, resulting in the company shutting down and a fine of $600,000. There is a good thread on FPA that suggests they could be related.
The other notable company that I’ve seen taking US clients is called KOT4X. Again, the set up is crypto-only deposits and it’s based in St Vincent and the Grenadines, so is anonymous. This company has also been promoted heavily by a couple of US-based affiliates, Cue Banks and Anthony’s World.
Like Hugo’s Way, KOT4X was launched in 2018 and does not seem to have had any problems doing business. Both of the affiliates promoting the site have also not had any problems that I can see.
It’s also plausible the two of them actually set up the company. Firstly, Cue Banks appears to have some connections to Jamaica, where KOT4X claims to have its physical office. The pair also run a prop firm together called TopTier Trader. These points could be incidental but clearly they have some ties, so maybe they’re running KOT4X together too – who knows?
There are some other players in St Vincent and the Grenadines who do seem like they happy take US clients but, from what I can see, KOT4X and Hugo’s Way are the two main ones.
As noted, both companies were launched in 2018, which means they’ve been going for seven years now and….nothing has happened. I can’t see them on any warning lists or that the CFTC has gone after them.
That’s not to say that it won’t or that what they’re doing is ok. However, this week I saw one big educator in the UK promoting a Mauritius broker to his followers. Is it that different?
I personally wouldn’t go after US clients because I enjoy sleeping well at night and not being in jail. But the point is that there are companies doing it and nothing is happening to them. Even the CFTC fine for JAFX was not ‘that’ much relative to the amount of money they could have made.
So is the US that different from any other country taking offshore clients? Unless you see Hugo’s Way execs hanging out with Sam Bankman-Fried, then maybe not.
