I. Introduction

In reaction to an increasing number of inquiries made by investors injured by forex brokers on the “Black Thursday” (15th January 2015) we issued a summary legal analysis in which we indicate legal remedies that, in our opinion, will prove effective in retrieving monies illegally taken from investors’ forex accounts.

As we are fully aware that for a great number of our readers, including journalists and law officials, topics relating to Forex remain as distant as the literal terra incognita, we decided to precede the analytical part of this article by outlining some rudimentary issues relating to Forex, especially market architecture and some aspects of the Forex industry. Injured traders can now turn directly to point IV of the article in which they will find answers to questions concerning their legal situation.

II. Aggressive subliminal marketing, this is how the game begins

source: www.facebook.com

reklama-tmsInvestment firms1 tell people that as well as the Forex market being accessible 24/7 from anywhere in the world, it is also extremely liquid and dynamic, which makes it immune to any possible manipulations from central banks, powerful financial institutions and of course from forex brokers themselves. Small retail investors are being encouraged, in a more or less sophisticated way, to grow their savings by investing with forex brokers that offer high financial leverage, which theoretically enables traders to obtain extraordinary profits for currency prices change so dynamically in the Forex market as in no other market on Earth. The so called “experts” hired by investment firms ensure people how easy it is to earn money just by putting their brilliant “strategies” into practice with a use of a personal computer, a tablet, or even a smartphone. A picture of you joining the fascinating world of finance and the inner circle of traders’ society is being neatly drawn, often by means of subliminal stimulus… you just need to accept (usually an incomprehensible) contract, submit an initial money deposit, log in to an application and start your own way to success in the Forex market – and yes, just by sitting on your couch with a smartphone in your hand you are soon going to become just another forex millionaire!

Sadly, for many Polish people their forex “adventure” turned out to be the beginning of their life tragedies – increasing debts, gambling addictions, depressions, family problems, being stalked by hired armies of debt collectors and lawyers who threaten to reveal their spurious debts to colleagues, neighbors, family…

Before we turn to strictly legal matters, it is necessary that we now answer the following questions: What forex market really is? What is the mechanics of executing transactions? Who are market participants?

III. Forex market architecture and functioning, brokers, manipulations, price rigging conspiracies, statistics

In the wake of the Bretton Woods system collapse in 1973 (gold standard abandonment and unpegging major currencies)in the late 80’s the first interbank forex trading platforms were introduced. Access to this infrastructure has been limited to a small circle of entities including multinational investment banks, national banks, corporations and other financial institutions. Today, despite the advent of the information society era and widespread broadband internet, Forex market has not become “democratized” at all.  It still remains a strictly limited, unregulated and decentralized structure, thus, not effectively supervised by any national public administration bodies, which is the reason why it is called an OTC (over the counter) market3.

So why do forex brokers offer making currency transactions in the Forex market to individuals with assets of only a few thousand PLN ( 1 thousand USD), while a minimum volume of a single transaction in interbank Forex market is USD 50 million?

They do offer, but only in marketing communications. In fact, a careful reading of terms and conditions reveals that all transactions are of unreal (virtual) character5, which means a transaction does not result in delivery of the underlying currency and is not directed to the interbank Forex market – actually, it is your forex broker that takes the opposite side of the transaction. Some brokers claim they direct transactions to a quasi forex market, known as the ECN6, in which a multilateral netting mechanism functions. Nevertheless, it is not possible to identify the ECN market with the interbank Forex market – just for the reason that liquidity in both markets differs dramatically. On the whole, in both instances a broker usually offers a bet on a derivative financial instrument called CFD (contract for difference), the value of which is based on live currency quotes from the interbank Forex market or possibly some other unknown sources.

Basically, there are two models of executing transactions by forex brokers.

In the first model (MM –Money Maker) a broker organizes an internal market – it sets currency prices itself; each transaction in CFD is a transaction between an investor and a broker. In fact, an investor does not conclude a currency transaction, but just a regular bet on a future currency price against a broker that sets the future price itself, based on quotes received from usually unidentified sources. Consequently, if you bet wrong and lose, your broker being the counterpart of the transaction makes a profit and vice versa. In this model a flagrant confusion of a broker’s roles occurs, a conflict of clients’ and brokres’ interests is obvious7.

In the second model (ECN – Electronic Communication Network) a broker acts as an intermediary between an investor and a market operator which is supposed to execute an order by matching it with another corresponding order. An ECN broker and a market organizer are bound by an infrastructure contract the contents of which remain strictly confidential. It is, therefore, completely unknown on what terms investors’ orders are settled, what role a broker actually plays and whether there are any conflicts of interest between an investors and a broker. Brokers do not make available to their clients any internal regulations relating to mechanism and rules of executing orders by a market organizer – an overseas company, often even an offshore one.

It must be noted that there are other similar models such as: NDD (non dealing desk), STP (straight through processing) etc. However, they are not much different from those mentioned above.

As we are not going to attempt to determine which of these models is better for a retail trader, we find it necessary to point out that the ECN functioning model seems far less transparent – the role of intermediaries and rules of orders settling remain completely unclear.

Speaking of Forex it is necessary to mention various pathological occurrences that have been recently revealed to the public.

According to information released by the US Commodity Futures Trading Commission (CFTC) and the UK Financial Conduct Authority (FCA) only in the first half of the year 2015 the said authorities imposed fines totaling USD 5,8 billion on professional forex markets participants (Bank of America Corp., JP Morgan Chase & Co., Barclays Bank Plc., The Royal Bank of Scotland Group Plc., Citigroup Inc, UBS AG) for pleading guilty to felony charges relating to conspiring to manipulate the price of US dollars and Euros8.

Over the last years CFTC and NFA (US National Futures Association) have also imposed severe financial penalties on retail forex brokers for currency prices manipulations, dishonest orders settlement or using asymmetric price slippage to the detriment of retail traders. Following the revealed irregularities CFTC and NFA opened investigations against forex brokers that resulted in granting high civil damages to traders; many brokers had to abandon their business in the USA9. The scale of abuse and irregularities in retail forex market reached such a level, that CFTC succeeded in pushing through a special federal legislation introducing higher standards of retail traders’ protection (see Dod-Frank Wall Street Reform and Consumer Protection Act of July 2010)10.

Interesting as it is, as a result of actions undertaken by CFTC no Polish forex broker (investment firm with its registered office in Poland) is now licensed to provide financial services to American residents11 as Polish brokers do not meet high legal standards provided for in the US federal laws.

According to the official statistical data published by the Polish Financial Supervision Authority (Komisja Nadzoru Finansowego – KNF) 93% of Polish traders in 2013 using platforms provided by Polish investment firms did not record any profit or recorded a loss12. Apart from the statistics, people involved in the retail forex industry admit – off the record – that those numbers do not reflect actual situation of retail traders, which may be even more critical.

IV. Legal situation of retail traders in the light of the “Black Thursday” (15th January 2015) events

The day of 15th January 2015, commonly called the “Black Thursday”, proved to be fatal for thousands of retail forex traders as at 10:30 am the Swiss National Bank communicated it is lifting EUR/CHF peg at 1.20.

Within seconds from SNB’s statement reaching financial markets, the price of CHF started to soar drastically gaining even 40% against EUR.

The situation in itself would not have been exceptional13 – similar events have taken place multiple times in the history of financial markets – has it not been for questionable conduct of some forex brokers between 10:30 and 11:00, as a result of which many clients suffered incredible losses:

  • most brokers quoted price of EUR/CHF constantly and without any disruption, enabling their clients to close all loosing positions instantly at the time of the instrument starting to drop: by closing positions manually, filling stop loss orders or by use of stop out mechanism protecting from negative balance;
  •  some brokers suspended operating their forex platforms making it impossible for traders to close loosing positions; orders were settled at very unfavorable and arbitrarily established prices,  which caused enormous negative balances on traders accounts;
  • another group of brokers also quoted price of EUR/CHF constantly and without any disruption enabling their clients to close all loosing positions instantly without exposing them to extraordinary losses, however, following the next 24 hours those brokers simply changed their mind  by informing traders that prices of the transactions already closed and settled are going to be requoted; the said requotation caused the same negative balances to appear on traders’ accounts;


A number of traders harmed by brokers’ conduct, who suffered losses between thousands and millions of Polish Zlotys, approached our law firm seeking an effective legal solution to retrieve their monies or to have their debts cancelled. As a result of actions undertaken by our law firm, in most instances brokers decided to settle disputes amicably by cancelling debts and abandoning debt collection procedures. Nevertheless, some clients decided to sue forex brokers before Polish courts of law requesting compensation for all their losses incurred on 15th January caused by faulty orders execution, especially non-execution of stop loss orders.

A class action relating to the “Black Thursday” events is going to be submitted by Saxo Bank clients, represented by Andresen Partners law firm in Denmark.

We wish to urge all retail traders that under the UE law, also implemented to Polish legal system, the burden of proof that a client’s order has been executed correctly is always on a forex broker; on each client’s request a forex broker is obliged to provide him with data and evidence demonstrating that an order in question has been executed at the best available price and according to the broker’s order execution policy14.

Accordingly, whenever in a Polish court of law a client questions an order execution correctness, a forex broker is obliged to submit evidence for the fact that the order in question was executed at the best available price and it was not possible execute the order at the price requested by the trader – failure to provide such evidence by a broker results in negative procedural outcome for a broker. Consequently, if a broker fails to provide sufficient evidence, the court shall award to the trader an amount of money that would have been on trader’s account, had the order been filled with the price indicated by the trader.

The ratio legis of the said regulation is to bring minimum level of transparency and verifiability to orders execution – interestingly, no forex broker ever informs his clients about such regulation.

Any contractual provisions excluding the right to request the abovementioned evidence from a forex broker are null and void under Polish law.

It is also worth a brief mention that there are many more legal remedies enabling traders to claim compensation for losses incurred while trading forex. Since the matter is beyond the scope of this article we can only indicate very concisely, that an injured trader may for example invoke so called “information tort” committed by a forex broker or forex transaction invalidity (nullity) – see the Polish Supreme Court Judgment of 19.09.2013, ref. I CSK 651/12, relating to “toxic” currency options. Under some circumstances a trader may also invoke a defect in his declaration of will in order to nullify a forex transaction and retrieve all monies transferred to a broker’s account. Moreover, many forex brokers operating in Poland do not meet fundamental formal requirements provided for in the Polish Act on Trading in Financial Instruments, which often makes all forex transactions null and void, thus, a broker is obliged to return to investors all monies transferred as deposits no matter how many transactions were made and what their outcome is.

V. Summary

Although forex brokers try to convince traders that it is virtually impossible to retrieve any monies paid as deposits, in fact traders are in possession of multiple legal instruments enabling them to effectively claim their deposits, not only those lost during the CHF rally on 15.01.2015.

Of course, all the remarks and observations made above are also applicable to any forex transactions. It must only be noted that under Polish law most civil claims against forex brokers become time barred after 2 years, unless they are pursued within criminal proceedings (in this instance statutory time limitation may be as long as 20 years).

author: advocate Patryk Przezdziecki

If you seek legal aid or further information, please contact us at:  forex@przezdziecki.eu


* leverage – mechanism enabling to increase financial exposition that lets an investor enter into transactions without having full financial coverage, e.g. with 100:1 leverage having only 1 000 PLN an investor is able to make a transaction for PLN 100 000;

* CFD contract – a contract for difference, a financial instrument which is not a security under the Polish Act on Trading in Financial Instruments, the value of which is dependent directly or indirectly on a currency value or other base instrument’s value;

decentralized market – non stock exchange, unregulated market, not having one established trading spot or institution that supervises it;

unregulated market – a market that is subject to limited regulations in terms of generally binding law, in which rules are laid down by a market operator itself;

multilateral netting – a procedure of settling transactions by means of a computer system that matches opposite orders without giving separate declarations of will by transaction participants;

manual order closure – termination and settlement of a transaction by current price of an instrument at the time of inserting a manual command by a trader;

stop loss order – an order resulting in an automatic closure of a transaction, provided certain market conditions are met (an instrument price reaches a predefined level), its purpose is to reduce potential losses;

stop out mechanism – a mechanism that that closes a transaction automatically and obligatorily, if  equity drops to a certain level, its purpose is to protect traders from negative balance;

liquidity -  the term describes the degree to which an asset or security can be quickly bought or sold in a market; if it is possible without limitations, we say the market is liquid.


1. pursuant to art. 3 point 33 of the Polish Act on Trading in Financial Instruments an “investment firm” shall mean an intermediary house, a bank conducting investment services, a foreign investment firm conducting investment services in the territory of the Republic of Poland or any foreign legal person with a registered office in the territory of an OECD state or WTO member state, which conducts investment services in the territory of the Republic of Poland;

2. Miachael Marcovici, ”The Forex Scam: What you must know about Forex online”,   Books On Demand edition 1, 2013 r., p. 82.

3.  V. S. Somanath, „International Financial Management”, International Publishing House Pvt. Ltd., 2011 r., s. 159-163.

4. Ł.S., „Market Maker, ECN – modele działania borkerów forex”, accessible via:   forex”http://bossafx.pl/index.jsp?layout=fx_2a&page=0&news_cat_id=3799&news_id=34557.

5.  „ Under the Contract and the Rules, HFT Brokers executes client’s orders to acquire or dispose of Contracts for Difference (CFD) by entering with the Client into transactions to acquire or dispose of Contracts for Difference (CFD) for its own account (…) CFD Transactions made between the Client and HFT Brokers are of unreal character and oblige the Client and HFT Brokers to a financial settlement without obligation of the Client or HFT Brokers to provide the Base Instrument” – point 8.3 of “Rules relating to conducting services of executing acquisition or disposal orders for Contracts for Difference (CFD) and operating CFD Accounts and money accounts – Non Dealing Desk (NDD) model” of 19 January 2015, accessible via www.hftbrokers.pl

6.  “(…) The Client investing in FX contracts enters into transaction by the price presented in DM mBank’s quotes, set based on data from interbank currency market. Financial settlement occurs in real time as a transfer of difference between the transaction opening price and closure price. The aforementioned transactions oblige neither party to deliver a base instrument, thus, transactions are of unreal character (…)” – point 12, page 6 “MiFID Information Brochure, information that DM Mbank S.A. acting as an investment firm is obliged to provide to the Client pursuant to applicable laws”, accessible via ww.mforex.pl/poznaj-korzysci.

7. Ł.S., „Market Maker, ECN – modele działania borkerów forex”, dostępne pod adresem:   forex”http://bossafx.pl/index.jsp?layout=fx_2a&page=0&news_cat_id=3799&news_id=34557.

8. David McLaughlin, Tom Schoenberg, Gavin Finch, „Six Banks Pay $5.8 Billion, Five Guilty of Market Rigging”, accessible via: http://www.bloomberg.com/news/articles/2015-05-20/six-banks-pay-5-8-billion-five-plead-guilty-to-market-rigging.

9. Susan A. Berson, Dave Berson, „The Dodd-Frank Wall Street Reform and Consumer Protection Act: From Legislation to Implementation to Litigation”, American Bar Association, 2012.

10. National Futures Association’ s decision of 1 August 2011, accessible via: http://www.nfa.futures.org/news/newsRel.asp?ArticleID=3851.

11.  search forex brokers licensed to offer their services to American residents, www.nfa.futures.org/basicnet/.

12. Communique of Polish Financial Supervision Authority of 2 July 2013 on results made by forex investors, accessible via: https://www.knf.gov.pl/Images/KNF_forex_2_07_2013_tcm75-35006.pdf.

13. for example flash crash in US stocks on 6 may 2010, https://en.wikipedia.org/wiki/2010_Flash_Crash

14. see. art. 21 point 5 of DIRECTIVE 2004/39/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 21 April 2004 on markets in financial instruments amending Council Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC of the European Parliament and of the Council and repealing Council Directive 93/22/EEC and § 96 point 1 and 3 of Polish Regulation of Finance Minister of 24 September 2012 on procedure and terms of conduct by investment companies and trust banks (Dz. U. 2012.1078).