broker solvency in market crash

Discussion in 'Retail Brokers' started by neutrade, Jan 6, 2006.

  1. neutrade



    New trader here, and new to the site. I'm considering moving trading funds from an account with Merrill to Interactive Brokers. I recently had funds frozen in a Rogers commodities index account as a result of Refco bankruptcy, and still do not know when, or if, I will recover, or in what proportion.

    So, in the event of widespread economic collapse, how does one protect their wealth? How does one asses the relative strength and viability of an individual brokerage?

    As a general observation I find this topic overlooked, but that seems dangerous to me.
  2. neutrade


    Plenty of views, no replies. Is this telling me what I fear? No one knows the answer to a potentially important question? What do traders learn first (hopefully) -- risk management. From a long term perspective, this is fundamental risk management.

    If you disagree I would like to hear why. If you agree it's potentially an important issue, but do not know the answer to my preceding two questions, please consider forwarding the original post to someone you know who may.

  3. Many types of accounts are insured. For instance, banks are FDIC insured, brokerage are SIPC insured and this will protect your assets.

    However, in the event of a "widespread economic collapse" there is nothing to protect you (who's going to be around to pay for the insurance claims?) Gold and silver, buried in your back yard, stored in a regional swiss bank, or a gold depository is your only protection.
  4. def

    def Sponsor

    You can start by looking at insurance coverage, the balance sheets of the brokerage, their margin policies, their income and regulatory history.

    As far as IB goes, one area were we differ greatly from most firms is that we don't make margin calls. Magin is required upfront BEFORE a trade is placed and if your account is in deficit, we'll liquidate a portion of your portfolio to bring it back into compliance. This may seem harsh but is very comforting to those who place significant balances at our firm as it obviously reduces the chance of a rogue trader bringing down the firm.

    There is much on this site in regards to this discussion already - particular under some of the Refco and FX threads.

    If you have additional questions, please let me know.
  5. def how does the extra insurance above sipc work? i know sipc is 100k. but whats each account insured for above 100k with private ins? i always see $1 million for cash and 30 million for securities. isn't there some gimic to the extra ins like a total aggregate of $200 million paid for the whole firm? so hoiw can somebody put $1 million with ib or any other broker?
  6. trader99



    I'm a long time user of IB and I really enjoyed the platform. Last night, I put on a YM trade. And I put a stop (buy stop since I was short) at 10951. But this morning when I checked my trades TWS bought the contract at 10971!!! Why did TWS covered me like 20pts away(that's $100/contract! ouch!).

    Is there any recourse for this? I also checked the chart and there were plenty of prices between 51 and 71. So even with slippage it shouldn't be that bad. Please clarify.


  7. def

    def Sponsor

    trader99, your post is off topic. in any event the best thing for you to do is contact the help desk. they can review the audit trail and see how the order was placed, when it was triggered etc.
  8. so def whats the answer to my question from above. explain how the over insurance works. is there a a maximum amount of over ins coverage for all of ib?
  9. Hi def,

    About account safety. Not so long ago, the following was posted. I kind of was puzzled by the implication that your money in your account would only be safe 'after' trading hours. I'm sure there is something I'm not getting here.

    As this is an important question, could you please comment on this. Always nice to see you come in to help out with our questions.


  10. tomcole


    You really need to talk to a securities attorney about this topic. Relying upon brokers or employees of any firm to explain why your money is safe, is not a good practice. If an employee of any firm tells you he speaks, uneqivocally, for the firm, ask for it in writing. Also, get the firms authorities book, which will detail what the employee can obligate or speak to and commit the firm to. You'd be surprised how little authority most employees have, regardless of their title.

    But, you need to remember that unless your money is in some sort of segregated account, or specifically liened or identifiable, most funds are co-mingled, so you become an unsecured general creditor in most cases, meaning, you get in line with the guy they buy pencils from to get your money.

    But if your concern is a general economic collapse, no one really knows what happens. You need an attorney.
    #10     Jan 7, 2006