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Brokers regulations
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Brokers regulations

  #1 (permalink)
Market Wizard
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Brokers regulations

I am trying to decide between Dorman and IB as my broker.
Are funds protected with these institutions? I currently have an account with FXCM here in the UK, and if things go pear shaped with the company, I know that my money is guaranteed up to 50K. Is it the same for IB or Dorman?

Thanks.

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  #2 (permalink)
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  #3 (permalink)
Elite Member
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Grantx View Post
I am trying to decide between Dorman and IB as my broker.
Are funds protected with these institutions? I currently have an account with FXCM here in the UK, and if things go pear shaped with the company, I know that my money is guaranteed up to 50K. Is it the same for IB or Dorman?

Thanks.

If you use IB as a UK resident, you will be with IB UK and thus have the same protection as with FXCM.

Not sure if Dorman has an UK entity, but if they don't your account will be protected under US regulations - SIPC - What SIPC Protects

Deposits with brokers are supposed to be segregated from the brokers' cash balances and therefore you should never need SIPC, but there are exemptions to this. For instance, MF Global used customer money to speculate on Greek government debt and clients of MF Global were not covered by SIPC.

If you are really that worried, you could always open another brokerage account elsewhere and by FOTM put options on your broker (assuming they are listed and have options like IB for example).

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  #4 (permalink)
Market Wizard
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grausch View Post
If you use IB as a UK resident, you will be with IB UK and thus have the same protection as with FXCM.

That was my expectation as well but when I called RJO in the UK and enquired about this they said the funds would be held in the US.

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  #5 (permalink)
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xplorer View Post
That was my expectation as well but when I called RJO in the UK and enquired about this they said the funds would be held in the US.

Well, the broker / financial institution is free to place your cash with whichever counterparty it chooses. For instance, if you have a USD cash account with your bank, the bank will most likely place that USD with a financial institution in the US. Same thing goes for EUR accounts and same thing for GBP or JPY or any other currency really. It is highly unusual to see a bank hold EUR in a non-EU country bank account, and even if that happens, somewhere in the chain, this money will be sitting in an EU bank account.

If you trade US futures, then the margin must settle in the US, and any gains or losses will settle against a US brokerage account. For IB UK to allow me to trade US securities, they must transfer USD to the US. Since all of my holdings are in USD, I suspect that all of my securities / funds are physically custodied in the US. However, my account is with IB UK and should IB UK go bankrupt, then the account is covered by the UK protection.

Should IB US go bankrupt, then IB UK will most likely also go bankrupt and in that case the UK protection will also kick in. I do not think that I would have a claim with SIPC since legally my account is in the UK.

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  #6 (permalink)
Market Wizard
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grausch View Post
Well, the broker / financial institution is free to place your cash with whichever counterparty it chooses. For instance, if you have a USD cash account with your bank, the bank will most likely place that USD with a financial institution in the US. Same thing goes for EUR accounts and same thing for GBP or JPY or any other currency really. It is highly unusual to see a bank hold EUR in a non-EU country bank account, and even if that happens, somewhere in the chain, this money will be sitting in an EU bank account.

If you trade US futures, then the margin must settle in the US, and any gains or losses will settle against a US brokerage account. For IB UK to allow me to trade US securities, they must transfer USD to the US. Since all of my holdings are in USD, I suspect that all of my securities / funds are physically custodied in the US. However, my account is with IB UK and should IB UK go bankrupt, then the account is covered by the UK protection.

Should IB US go bankrupt, then IB UK will most likely also go bankrupt and in that case the UK protection will also kick in. I do not think that I would have a claim with SIPC since legally my account is in the UK.

Interesting, thanks. Since my interaction with RJO was about 2 years ago I have forgotten the details but you're right, given the aim was trading US futures any margin would have been settled in the US but I can't quite remember why they would talk about US regulation protections given my relationship and (presumably) my account would have been in the UK.

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  #7 (permalink)
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xplorer View Post
Interesting, thanks. Since my interaction with RJO was about 2 years ago I have forgotten the details but you're right, given the aim was trading US futures any margin would have been settled in the US but I can't quite remember why they would talk about US regulation protections given my relationship and (presumably) my account would have been in the UK.

Not sure why they would talk about US protection either. Perhaps there is a good reason for this that I am unaware of. However, that being as it may, most traders do not need to worry about account protection at all - it is only a matter of time until they lose their capital on their own. While it sounds harsh, that is the sad reality of this business.

If an account is large enough that account protection becomes a priority, your best bet would be spread your money across several brokerage accounts / banks. Even though clients of MF Global in the US eventually received back 93% of their money, the process took a long time. MF Global clients in other countries received a lot less in the end.

If you are so inclined cheap OTM puts can be bought as insurance, provided you buy them with a different broker.

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  #8 (permalink)
Market Wizard
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grausch View Post
Not sure why they would talk about US protection either. Perhaps there is a good reason for this that I am unaware of. However, that being as it may, most traders do not need to worry about account protection at all - it is only a matter of time until they lose their capital on their own. While it sounds harsh, that is the sad reality of this business.

If an account is large enough that account protection becomes a priority, your best bet would be spread your money across several brokerage accounts / banks. Even though clients of MF Global in the US eventually received back 93% of their money, the process took a long time. MF Global clients in other countries received a lot less in the end.

If you are so inclined cheap OTM puts can be bought as insurance, provided you buy them with a different broker.

Thanks for the info grausch.

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  #9 (permalink)
 Vendor: www.cannontrading.com 
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Grantx View Post
I am trying to decide between Dorman and IB as my broker.
Are funds protected with these institutions? I currently have an account with FXCM here in the UK, and if things go pear shaped with the company, I know that my money is guaranteed up to 50K. Is it the same for IB or Dorman?

Thanks.

Hello, I'm a broker with Cannon Trading and we clear through Dorman. The way futures accounts work is that funds are held in the clearing firms customer segregated funds. Meaning that your funds are held completely separate from the FCMs funds or operating funds. If the firm was to go bankrupt your funds are completely separate from the FCM and you will be able to still access your funds. Futures accounts are different from stock accounts. Futures accounts does not have SIPC like stock accounts. But your funds are safe in segregated funds accounts with the clearing firm. Let me know if you have any other questions

PM with any questions about Cannon Trading (800) 454-9572 (310) 859-9572. Trading commodity futures, forex and options involves substantial risk of loss. The recommendations contained in this post are of opinion only and do not guarantee any profits. These are risky markets and only risk capital should be used. Past performance is not necessarily indicative of future results.
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