Online foreign exchange trading

Mr D had an online foreign exchange trading account with XYZ, which he opened in May 2011 after signing up to the required customer agreement and terms of business. These advised, among other things, the risks associated with highly leveraged foreign exchange trading. He accepted these risks by agreeing to the term of business.

These agreements regulate matters pertaining to trading with XYZ.

In May 2012 Mr D began trading on his XYZ online account with an initial amount of USD1030. He traded most of the day, making a small profit. But as the day progressed he saw that he had built up a profit of USD44,544.

After a break, Mr D returned to his computer to discover that his account showed a balance of only USD998 - less than the amount he started with. He made a further two trades to test whether the trading system was working properly. These were the only trades that appeared on XYZ's log file for the day, and all prior trading had been deleted. Mr D contacted XYZ to find out what had happened.

There was a significant delay in receiving a response from XYZ. Mr D eventually received a reply in June 2012, which explained that a malfunction in the system had resulted in some trades being executed at the incorrect price. XYZ explained that these prices were related to the actual trading prices on the day, and had been supplied by one of its liquidity providers.

A satisfactory settlement could not be reached though XYZ's own internal complaints process. XYZ therefore issued a deadlock notice to Mr D and the complaint was escalated to FDR's complaint prcoess. During the initial Facilitation phase, information was shared between the parties.

XYZ advised that while its trading system has a filter for detecting out-of-market prices and removing them from the system's price feed, the program did not perform itsfunctions properly on the day in question. XYZ repeated that the erroneous prices were supplied from one of its liquidity providers. XYZ explained that the trading system normally automatically blocks the liquidity provider delivering incorrect values, and also removes the incorrect values from the system.

In adjusting the price to bring it back in line with the actual trading prices available at the time, XYZ submitted that it was acting in accordance with its Customer Agreement and terms of business, which regulate all matters pertaining to trading with XYZ.

XYZ stated that it had placed Mr D back to his starting position for that day as per the Customer agreement, and he was therefore not in a less favourable position than he was prior to the day's trading. XYZ considered this to be a fair and reasonable approach.

XYZ provided an example of what could have happened had the correct trading price been applied, and this resulted in a negative balance.

At the end of the Facilitation process no agreement was forthcoming and the matter was referred to an adjudicator for determination.

The adjudicator considered submissions from both parties, and found that XYZ had adequately explained what had happened, and that its actions in the circumstances were consistent with the agreed terms between the parties. The adjudicator found that Mr D had not provided any evidence supporting his strong view that XYZ had engaged in improper trading practices.

The complaint was accordingly dismissed. However, the adjudicator noted her concern that the contract between the parties had been drafted heavily in favour of XYZ, and requested FDR to raise this as a systemic issue. FDR has since reported it to Consumer Affairs as such, and also advised XYZ of its concern that the terms reflect an uneven position between the service provider and the client.