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The Rise and Fall of IGOFX

Jul 03 2017
By
Jonathan Smith

In this article we will summarize what happened with IGOFX and their “famous trader” Vladislav 77. They made an astonishing 158 000% in absolute gains, from February 2014 to June 2017, via an account, which clients were encouraged to copy. The entire scheme later collapsed, with a massive loss in a single position. This story may not be as glorious and dramatic, as the rise and fall of Jasse Livermore, but it may prove to be even more valuable for the unsophisticated investor.

 

A little bit of context 

 

IGOFX is a forex broker, registered in Vanuatu. If you have read any of our reviews, you will know, off-shore companies are not to be trusted, as much as well-regulated ones. The reason for this may be obvious to some, but we will reiterate it for newer traders/investors.

 

The financial services industry, which includes a lot more than forex trading, is by its nature prone to scams. This is why most countries have created dedicated agencies to regulate the entire sector. These so called “watchdogs” monitor the activity of companies such as forex brokers, banks, insurance companies, mutual funds and so on. For instance, in the United Kingdom, there is an institution called the Financial Conduct Authority (FCA), which covers a lot of what we mentioned above. The equivalent in Vanuatu is the VFSC, which is notoriously well known for its loose regulatory standards. In order to open a forex broker on the island nation one must have $2,000 in capital. This is as low of a bar as one could imagine.

 

Would you deposit your “rainy day fund” in a bank you just heard about, which has $2,000 in capital? The thing is, some people are willing to invest their risk capital without doing proper due diligence. All it takes to convince them, to part with their money, is an eloquent speaker/writer. 

 

The pitch

 

So how did IGOFX manage to attract investors? There were big promises about massive returns, with a low level of risk. Here is one of their early commercial materials, as posted on a popular forum by one of their salesmen:

 

 

Lets leave the returns for later and focus on the sheer concept of this offer. A forex broeker is providing its clients the ability to follow one of their trading systems, only if they trade with the them. As we have explained multiple times in the reviews of companies, providing this kind of service, there is an inherit conflict of interest potential. If the broker in question operates on a STP/ECN model, they have the incentive to create a system which trades frequently, hence generating a lot of commissions. On the other hand, if they are a market maker, the problem is even more obvious – they can simply loose all of your money … to themselves.

 

Nowadays, about a month after the entire scheme felt apart, IGOFX still offers signal provider services, but the tone of their website is “slightly” less pushy. See if you can spot the difference:

 

 

We are not saying all PAMM or Signal Providers are scammers. Services, like Zulutrade aim to match traders with potential investors, with the key difference being, you can (and must) do your due diligence, when it comes to the traders you wish to follow. Notice how we said “traders” - diversification is the key to successful investing. Don’t stick your entire risk capital with one trader, especially if he is exclusively recommended by a broker.

 

Risk to return

 

Coming back to the first piece of advertising material, by IGOFX, they promise an expected return between 10% and 15% per month. That may not sound like a lot, but it is actually an astronomical rate of return. If a trader can consistently achieve these results, Goldman Sacs, JP Morgan and the world’s top hedge funds will be fighting over him. Furthermore he would have probably taken a loan and started his own hedge fund.  So if their system can achieve this with a “low level of risk” and they are offering it to anybody?

 

If it sounds too good to be true, it probably is. A key rule in finance is that higher returns always come with a higher level of risk. This leads us to the trading system behind this scheme.

 

Who was Vladislav 77?

 

The trader who investors were supposed to follow was called Vladislav 77. Allegedly a Ukrainian trader, with years of experience in the markets. An Eastern European smart guy, who doesn’t have enough capital to trade for himself sounds fairly probable, so the story almost adds up. 

 

He had an account at myfxbook, allowing people to follow him, only if they register with IGOFX. The fact he offers his service only via one broker (instead of using myfxbook’s AutoTrade, for instance) is highly suspicious.

 

Furthermore a lot of the stats on his account are kept hidden – another red flag. Most importantly, his equity curve looks almost perfect, which can only increase the level of suspicion. Here is a screenshot of his account:

 

 

 

Although you may be thinking this is a grid-based system, as their results often look like this – lots of small winners, followed by a massive loss, wiping-out the entire account, this is not the case. We can not determine his trading strategy exactly via the myfxbook account, given the fact, some of the data is private. 

 

What we suspect may be the case, especially since the track record is not verified, is that this may be a fake account, ran by IGOFX. There are ways to manipulate your myfxbook history, especially if you are the broker, through which the account is being traded. The idea always was to blow-up the account (with all of the folwers’ money) and loose them to … IGOFX, the market maker. Although we have no definitive way of proving our theory, Vlad is most likely only a pseudonym. 

 

The end of the line

The end of the line for this fiasco is a literal straight line down at the end of the equity curve. An amazing 94.39% of the account’s value are lost in a single trade in the GBP/USD, after the parliamentary elections:

 

Given the fact, this system has survived the Brexit vote itself, which caused much greater volatility in the markets, it’s hard to believe this was an oversight by the trader. We believe this to be an intentional over-levaraged loss, aimed at ending the entire scheme. Maybe too many people were willing to withdraw their “profits”.

 

Lessons to be had

 

Although we started with a comparison between Vladislav 77 and Jasse Livermore, at this point one with Bernie Madoff feels more appropriate. In our opinion IGOFX ran a Ponzi scheme, aimed at unsophisticated investors. What can you do to avoid getting caught in similar scams, because they will not cease to pop-up now and again? Here are a few tips:

 

1. Always question the other side’s motives? Why are they offering you this service? What’s in it for them? Will they gain anything if you loose?

 

2. Stay away from things which sound too good to be true. Although double digit monthly returns are not totally unheard of, getting them consistently is.

 

3. Be wary when dealing with off-shore companies.

 

4. Do not follow a system provider, who forces you to trade with one particular broker.

 

5. Do not follow one particular trader, who your broker excluxively recommends.  

TAGS: igofx  igofx scam  igofx mlm  igofx vladislav  vladislav 77  igofx hoax   
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