FSMA Issues Warning Against Prop Trading Firms and Simulated Investment Schemes

The Financial Services and Markets Authority (FSMA) of Belgium has issued a public warning regarding the risks associated with proprietary trading ("prop trading") companies. These entities claim to offer consumers the opportunity to trade financial instruments—such as Forex, CFDs, cryptocurrencies, commodities, equities, and bonds—without using their own capital. According to the regulator, access to these programs is contingent on consumers completing expensive and difficult training assessments, commonly referred to as "challenges." These tests are designed such that many participants fail repeatedly, requiring them to pay multiple entry fees. Consequently, prop trading companies generate significant revenue directly from these paid evaluations. Even when consumers pass the challenges and receive a certificate issued by the company, trading takes place within a simulated environment on a demo account. The prop trading firm independently decides whether to copy any of the user's simulated transactions onto real financial markets. The firm also holds unilateral control over the terms of engagement and the distribution of commissions, making it difficult for users to determine if or how much they will be compensated for profitable trades. Furthermore, the FSMA noted a sharp increase in aggressive social media advertising for prop trading firms, alongside an auxiliary market of third-party websites selling challenge preparation courses and specialized trading software. The regulator emphasized that prop trading firms do not hold regulatory authorization to provide investment services. Additionally, the gamified nature of these simulated platforms can encourage overconfidence and reckless financial behavior, exposing participants to substantial losses when trading complex instruments like Forex and CFDs.