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Paranoid after MF Global
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Paranoid after MF Global

  #1 (permalink)
Trading Apprentice
Plymouth, UK
 
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Paranoid after MF Global

Hi all.
I didn't get to do an intro before.
I've already made and lost a lot of money. Rare this has been due to poor trading decisions. It's taught me to do due diligence. There are so many threats. I have a very simple strategy which I want to enact. Yet I feel paralyzed at due diligence after MF Global UK, FXCM near miss and a hedge fund FSA shut down that cost me. I'm not clear on what has really changed since MF Global. It seems those affected the most exited and most others turned the other cheek and carried on... probably emotionally categorizing in their head as a trading loss.

The problem is that when I start getting into something new I get obsessed and want to know everything about it. But to study and know all your risks in choosing a broker is a lot to research.

I argue that the due diligence required is too great for a trader to properly execute. A trader should have some background understanding but the level required now needs to be summerised by someone taking it as a full time job.

Let's look at this thread:

13752-due-diligence-nfa-search-ib-interactivebrokers-s-fcm-s-cta-s-etc

A) The thread is a sticky... yet woefully out of date. All the CTFC links are out of date. They need to be linked to the NFA site. But typically a company like IB and AMP needs to be traced to a larger company.
B) Then you also have to consider 'where' the account is opened... see the difference between MF Global Canadians and UK (100% vs 0%): thenextturn.com choose-broker-wisely-lesson-mf-global/]The Next Turn - Choose Your Broker Wisely ? A Lesson from MF Global
C) Even Mike's broker, Mirus have been involved in manipulation. So you next might want to check for fines
D) Execution order. I have been victim of this with a few FXCM fills but fortunately nothing major. I hope this should be less of a problem for buy and hold. Lightspeed seem to have the upper hand at this...

So the list of work to be done might be:

1) Reduce the amount of brokers you have to search down to say 3, by using cost studies which seem to be the only thing people are interested in and have discussed, shared and made easier to understand
2) Trace the parent company. I don't know how to do this in the UK and USA
3) Look up that company at the NFA, not CTFC
4) ask the more normal questions. how are my funds segregated? can you change my orders in extreme circumstances

We have a derivatives bomb yet nobody here is doing any work on it. It needs a summary table. It needs information to be shared around members

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  #2 (permalink)
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  #3 (permalink)
Elite Member
Luxembourg, Luxembourg
 
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I have been thinking about the same thing recently.

Something I am very interested in is what type of protection is afforded to clients of Interactive Brokers (UK). My account is with them, but they are part of Interactive Brokers in the US, which of course has SIPC coverage on its client accounts. In cases like this, would SIPC coverage apply to the UK accounts as well?

However, the only way to really protect yourself would be to either a) have 3 or 4 brokerage accounts, or b) have 1 brokerage account and 3 or 4 bank accounts. I prefer the brokerage account option since if your connection to your broker goes down, you can always "neutralize" the position at any of your other brokers. Also, if SIPC applies for the UK accounts, I can be able to increase the amount of money covered by this merely by using more brokerage accounts.

 
  #4 (permalink)
Trading Apprentice
Plymouth, UK
 
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graush,
there's a thread on this on trade2win which I can't link to. I see FCSC cap £48k. Tied to UK gov. Also in .pdf doc "INTERACTIVE BROKERS (U.K.) LTD. DISCLOSURE
REGARDING CUSTOMER ASSET PROTECTION"

Better than a bank?

Still wold prefer a broker in a country that hasn't approved bail-ins/outs/whatever

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  #5 (permalink)
Elite Member
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Thank you, your post gave me the needed wording to google this - http://ibkb.interactivebrokers.com/node/2012

FSCS protection up to GBP 50k. Significantly less than SIPC. Guess I will be contacting Schwab and / or TD Ameritrade as well.

 
  #6 (permalink)
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Forgot to ask - what % of the money was recovered from MF Global UK? MF Global US recovered 90%+, but I think MF Global AUS customers received very little. Although, with MF Global, the futures accounts were not segregated as you have with equity accounts as the regulation allowed the brokers to use customer money for investment purposes. This should never happen with equity accounts, but I am still pretty paranoid and can't have broker fraud put me out of business.

 
  #7 (permalink)
Trading Apprentice
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Many UK clients got nothing back. Certainly those who had to liquidate to cover client positions made large losses. There's an article on this I can't link to. The australians and Brits were worst off... from memory i think it was <20%. Meanwhile I remember Canadians got 100% and yanks ~70%.

Now, there has supposed to have been some changes since then but I'm not having much luck finding non usa specific info on what changes have been made to protect us


grausch View Post
Forgot to ask - what % of the money was recovered from MF Global UK? MF Global US recovered 90%+, but I think MF Global AUS customers received very little. Although, with MF Global, the futures accounts were not segregated as you have with equity accounts as the regulation allowed the brokers to use customer money for investment purposes. This should never happen with equity accounts, but I am still pretty paranoid and can't have broker fraud put me out of business.


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  #8 (permalink)
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Please use the main MF Global thread to discuss MF Global

https://futures.io/brokers-data-feeds/14624-mf-global-situation.html

Mike

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  #9 (permalink)
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Ok Mike, will not post about MF Global here again. I was not aware of the other thread.

With regards to account protection, I know of a MW who has more than 4 brokerage accounts. He has his main brokerage account, another brokerage account which allows him to offset positions in the main account if he ever cannot connect to his main account, and it also sounded like he had several unused accounts just to have his cash diversified.

It can be quite a problem to track all of these accounts, so I was looking into dividing my capital into 3 or 4 and using NinjaTrader to place trades in all accounts simultaneously. With NinjaTrader I can trade equities with 3 brokers, so that would be one way of diversifying away my counterparty risk.

Or the other option would be to just open 4 accounts with 4 different brokers and use two of them independently. If I fully margin 2 accounts, my exposure would be 100%. Since I don't daytrade and trade less than 20 times a month, I am leaning towards this approach.

But yes, I am very wary of another MF Global and I would rather be safe than sorry. Also, even if the accounts are fully segregated and protected by SIPC or another insurance, how long would the account be inaccessible? How will I exit my positions if I can't access the account? I really think the only way to reduce my counterparty risk is by having 3 or 4 accounts with different brokers.

Then of course, one also needs to be aware of who owns whom. For instance Schwab owns optionsXpress, so you can only use one of them. If Schwab goes under, who knows whether the assets in optionsXpress are safe. If this all sounds paranoid, I know of a trader who made his living with his MF Global AUS account - I am not sure what he does now...

 
  #10 (permalink)
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I'd like to hear what your trader friend is doing now too. He could well have been ruined. I don't have permissions to reply to that thread but really MFG is really only one example of a cautionary tale. I mean, MFG wasn't the only broker to go bust at that time.

Depending on conditions there's no reason to assume that many brokers could have problems. Diversify is one way but as I've been trying to say in other threads, all the main brokers people are using are economically linked so the diversification is limited - typically most are USA-centric. Where's the Japanese brokers? Australian? South American? That's what I don't understand


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