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Avoiding Broker Insolvency


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Avoiding Broker Insolvency

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  #11 (permalink)
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Pa Dax View Post
It depends whether you are using margin. That is if you have a leveraged position on or not.

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Currently I have a cash account with ibkr.

My idea would be to change it to a margin account.

Then doing intraday with micro futures ... small trades in small ranges of time (minutes, seconds) ...

The rest of the time I would be in full cash ... that's why my doubt about this cash would be insured or not by SIPC/FDIC ...

Thx

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Blaster666 View Post
Currently I have a cash account with ibkr.

My idea would be to change it to a margin account.

Then doing intraday with micro futures ... small trades in small ranges of time (minutes, seconds) ...

The rest of the time I would be in full cash ... that's why my doubt about this cash would be insured or not by SIPC/FDIC ...

Thx

Best advice is to contact your broker. They will know, and can answer specific questions about your account.

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  #14 (permalink)
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I was thinking of something else as well to take into account @Joshua1984. Even whilst your capital is protected, in the case of an insolvency it doesn't mean you are getting your funds back instantaneously. Instead, you would have to consider that it can take months or even years for everything to be worked out and you get your funds back so always spread risk and don't lock up money somewhere that you need to live on in the near future.

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Pa Dax View Post
I was thinking of something else as well to take into account @Joshua1984. Even whilst your capital is protected, in the case of an insolvency it doesn't mean you are getting your funds back instantaneously. Instead, you would have to consider that it can take months or even years for everything to be worked out and you get your funds back so always spread risk and don't lock up money somewhere that you need to live on in the near future.

Agree with this. Take profits out of any broker accounts pretty often, and don't be quick to put them back in. You'll need most of your funds outside of the broker entirely. Leave only the minimum you think you need to trade with.

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  #16 (permalink)
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Joshua1984 View Post
Hello,
Does anyone have an approach in terms of avoiding brokers becoming insolvent and safeguarding their funds? Did you move your funds out of your broker to your bank account? Is there a good way to gauge which brokers are more susceptible? What are best practices?

Andreas Clenow often suggests in his books that it is irresponsible to just have cash in one's account and suggests holding G7 government debt. Do any futures brokers offer access to those instruments?

"In the end, everyone thinks that they have money in the bank but itís all the same money, and the illusion only works until everyone wants to get their money out at the same time. This of course never happens, unless the bank is about to go bankrupt or there is a perception that the bank might go bankrupt, in which case it becomes a self-fulfilling prophecy. What you need to understand about this is just that cash held with a bank is not secure and will be exposed to counter party risk against said bank. If the bank goes belly-up, you will probably lose all your cash. Still, you do need some cash on the books and a reasonable amount of counter party risk is the cost of doing business, but you should pick your broker well and not keep too much cash lying around for no reason.

Exactly how you keep this excess cash is something you need to think through and plan. I recommend sticking only to government debt with top tier countries, preferably in your base currency, because it is not worth increasing risk to get a few extra basis points from lesser creditors. If you place the money only with the government who controls your fundís base currency, or in the case of the Euro the most trusted of the member nations, your risk level is almost nonexistent. Regardless of the state of a nationís economy, a G7 nation will pay back debts in its own currency, because they own the printing presses. The exception is of course the Eurozone, but the strongest nations are still considered quite safe."


Clenow, Andreas F.. Following the Trend: Diversified Managed Futures Trading (Wiley Trading) . Wiley. Kindle Edition.

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