Forex Blog

The5ers Founder Addresses Prop Firm Regulations & The Situation

September 4, 2023 | 5:27 pm | Forex Blog
September 4, 2023 | 5:27 pm
Forex Blog
The5ers Founder Addresses Prop Firm Regulations & The Situation

Prop Firm Regulations

In this video, The5ers CEO Gil Ben Hur addresses prop firm regulations and the situation with My Forex Funds (MFF).

Watch the video

How a prop fund operates

We’ve been pioneers in proprietary trading, though we believe it’s more accurate to say that we are funding traders. However, for simplicity, we often use the term ‘prop trading.’ When we started this business, our goal was to create a fund, and we created a private equity fund using our resources. We are actively seeking talented traders to work for us as contractors. Essentially, the relationship with the traders is that once a trader is funded, they provide a service to us. We are the clients, which is why we compensate the trader. There is a significant misunderstanding regarding the proper relationship between a prop fund and its funded traders. This explains why we conduct our operations in the manner we do.

What is The5ers business model

We have certain programs to fit certain styles of traders. Once a trader has demonstrated profitability, the dynamics change, and we rely on the trader to generate profits for the company. Funded traders provide us with a service, but they are also our clients because we provide them with the opportunity.

Liquidity Providers

The model that MFF was running is very different from The5ers’ model. What was happening with MFF is not a direct reflection of what is occurring with The5ers.

For a long time, we have been asked who the broker is behind The5ers, and the answer is that we use multiple liquidity providers. We have a unique relationship with these top-tier liquidity providers that are highly regulated.

There are two kinds of companies. The first type has all the technology to work with multiple streams of liquidity providers, while the second type works with a singular broker. The latter actually assigns the trader to the infrastructure of a known broker, and then they have very little control over how they manage risk in their own fund. This is reflected in the terms they provide to their traders.

The more classic, legacy way to manage a fund is to have a pool account where you take all your funded traders and give them permission to submit trades on the fund’s behalf. In the end, we can aggregate all these feeds and provide the best conditions for any tick. Our traders get the best price, the best spread, the best execution because we know how to route the order. There are many advantages to companies that work this way.

Ultimately, when you work in any partnership, it’s all about trust. Throughout the years, what we care about most is trust and the relationships with our traders. We are very aware of how easy it is to become disillusioned. We take it personally when traders are not satisfied with our services. If you read the reviews on The5ers, you will never find anything about slippage.

Are The5ers traders trading real money?

It’s as clear as it sounds – when you are funded with The5ers you trade real funds.

The MFF Documents

When I read the documents, it became clear that they don’t fully understand the business model. They perceive the prop trading environment as something that bypasses brokerage service providers. I believe that some companies present themselves this way, offering a brokerage service with a layer of proprietary trading. Our approach is different; we are a fund seeking traders to work for our fund, using our capital within that fund. We do not resell brokerage services, which is why we do not direct our traders to any specific broker. Instead, we have our own pool account from which we execute trades.

It is quite clear that the individuals who composed the document on the prosecution of MFF were seeking to identify all the similarities to operating as a broker. This is understandable, as they had previously been involved in the brokerage business. However, when they discussed the layer of proprietary trading on top of that, they were astonished to mention the 10% drawdown as if it were designed to make traders fail. In reality, it means that MFF wanted people to be aware of the risks up to 10%, which I believe is the right approach. Nevertheless, it demonstrates their incomplete understanding of the business model.

That being said, I think many people who enter this space as traders also have incorrect expectations regarding the services provided by a proprietary trading fund. They mistakenly view it as an alternative to a broker and expect the prop fund to provide a service similar to depositing their own money with a broker, which is not the case.

Prop Firms Regulations

Where do we see the prop firm regulations going in the future?

I hope for prop firm regulations, not because I believe we should be regulated, but because, in the end, we serve thousands of retail traders. As service providers, we aim to uphold a certain standard of ethics. Since this is a trust-based business, as mentioned earlier, it’s crucial for a regulator to protect the interests of traders. However, I anticipate that regulators may find it challenging to intervene in this industry due to its nature. We operate as a private equity fund and have the prerogative to manage our resources as we see fit. Our primary duty is profitability, and no regulator should dictate our investment decisions. Regulators exist to protect clients from fraud and financial misconduct.

The issues encountered by MFF primarily stemmed from their creation of a broker business alongside it. Given that we do not have such a structure, it would be hard for regulators to impose regulations on that.

As long as some companies fail to understand the business model and continue to repackage brokerage services, regulation will remain challenging. Nevertheless, in terms of ethics, our integrity, and the safety of our traders, I wish there were a framework to help us define clear public ethics that would make people feel more comfortable when they choose to work with us.


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