agree but even when they do (e.g. ACM with UBS & Deutsche, my second-tier prime broker with RBS) they don't seem to be very willing to offer properly / unequivocally (i.e. offering protection shld the broker go bust) segregated accts to their clients... at least thats what i am observing right now... if anybody has first-hand experience to the contrary, please share!
The FX retail brokers also must make it easier to withdraw funds. You should be able to log-in to your trading account and transfer funds directly into your bank account, similiar to PayPal. Faxing the withdraw form can be an option, but not the only means of access to your funds.
Security and cost of withdrawal is really the main issue here for the topic of your post, IMHO. Speed and Ease are important also, but not the main concern. Name one Dealer/Marketmaker who does not allow you access to your funds?
2cent--Was thinking about your dilemma and has 2 thoughts . Maybe ask the forex counterparty to amend their agreemnt to include some sort of langauge like- 1. If ownership changes or credit deteriorates to X level, your funds will immediately be wired out. Of course its impossible to monitor, but in bankruptcy you may be ablem to ask the judge to return your funds as you had a prior agreement violated before bankruptcy, or, 2. If customer funds and THEIR paid-in-equity percent drops to some level you're uncomfortable with, you get monies wired out immediately. Again, impossible to monitor, but you may get a leg up on others who are stuck in bankruptcy and/or a credit deterioration situation you dont want to be in.
The fact that a trader would have to consider such things means they are not going to work. Do you know how well capitalized Ameritrade is? No of course not, because if they went under your funds wouldnât be at risk. Either of two things will happen in the Spot FX market: 1. Regulation â The CFTC will get some teeth and make segregated account mandatory and spell out that customer funds are an absolute priority for spot FX. When this is suggested the industry will quickly consolidate since many of the smaller brokers are inadequately capitalized. 2. Partnerships â Spot FX is a huge market and growing rapidly. Three market makers are on the Inc 500 list with three year growth of over 1,000%. With potential revenue per employee of over $500,000 the firms are a goldmine. The standing MM will have partnerships with the larger banks who would specifically guarantee customer funds. Any MM with out one of these partnerships would be finished. As far as your proposals you can see the capitalization on the CFTC website updated monthly http://www.cftc.gov/tm/tmfcm.htm but Iâm not sure how effective that would be. By the time you see the CFTC numbers it will probably be too late. Trader/God
TraderG- I understand your points well, but 2cents issue is he is non-US based and looking to use a high-leverage firm yet wants a credit-shield in case the fx-broker implodes. Its a worthwhile question. There are lots of credit analysis tools available to monitor firms, but controlling a credit-based risk or 3rd party risk, eg, the CEO runs off with your money, or another customer hands them a massive loss, is hard to quantify. He likes their services, not their credit. Monitoring day-light credit is difficult. Thats what we're chatting about - not an FCM's cap requirement.
tomcole, trader/god - thanks, appreciate the inputs / suggestions just by way of feedback: . i did ask for and obtain a couple of minor contractual 'improvements', altho not nearly as many as i was seeking to obtain (but thats no surprise), however nothing as far-reaching as what tomcole is suggesting unfortunately. perhaps if i were in their top 10 accts / partners list i'd stand a better chance, dunno... in any case, i tried, and got some, perhaps not enough but at least no regrets... . in regard to segregation, what is becoming clear at this point is, they (my second-tier fx prime broker) definitely won't entertain the idea of "myname" designated client accts, the type that wld provide 100% safety of funds in the event of a broker default. no ill will there, its just that they too don't need the hassle (i once had to implement escrow type arrangements for a sale, i know exactly what they mean...), and they are not doing it for any of their other 11,000+ brokerage clients (all products, not just fx), therefore no offense taken... no done deal yet but after a couple of negotiating rounds over the last 6 weeks, the lines are pretty much drawn here... it seems i am either going to have to settle for what they were offering earlier (see previous posts), i.e. 2 accts per client, 1 seg ("broker name" omnibus cust segregated acct) and 1 non-seg (utilized fx margin + yet tba) and the cross-margining / sweep agreement, or take my money/clients elsewhere will i (settle)? most likely, yes, because of the overall T&Cs i am getting from them, the fact that their (audited) financials look good enough to me, their good UK-FSA record, their good rep ... i tried hard but in the end i have to defer to the UK-FSA / the regulators more generally, to implement more comprehensive segregation-type measures on the spot fx mkt... am sure it will come in time, sooner than we think, thks to competitive pressures (of CME eFX products notably)! cheers
2cents, What exactly do you think these spot FX firms are doing with their omnibus customer funds? How much risk do you think they are taking, by loaning or investing those funds? Do you think you, as customer, will be compensated for those risks? Isn't it heads they win, tails you lose, so that they have every incentive to pursue hi-risk (for you) investments, yielding hi-return (for them)? You are looking at broker financial statements, but do you get to see the financials of the parties with whom the brokers park customer funds? Do you think there is any legitimate reason for a retail spot FX broker to keep funds, currently in use as margin, separately and less safely than funds not currently in use as margin? Doesn't the whole scheme of sweeping funds between two accounts increase the costs to the broker? Aren't they offering this scheme, despite its higher costs, because it allows them to perpetuate their scheme of exposing your funds to risk, while pocketing the rewards for themselves? Is there any other reason for sweeping funds? Do you think that perhaps this whole FX trading thing is a carrot dangled in front of your face, to distract you from the fact that you are financing ultra-risky investments without compensation? Could perhaps junk bonds be a better investment than your FX trading, because at least then you are compensated for your credit risks, and you can also diversify those risks?
2cent- Thanks for posting. Interesting indeed. I think the issue of "costs" related to sweeping funds into some sort of seg a/c is a red herring. I just doint see it as an issue if they have 11,000 accounts. It just requires a push of a button to move funds, its not like someone is carrying a satchel of cash in a cab across town. I dont really have any idea of how big/small the segment of the FX mkt is you're dealing in, meaning the ultra-high leverage crowd, but I wonder if another way to quantify the risk is to ask a speciality insurer or credit swap dealer if they'd consider and at what cost a credit option would cost. If the cost is 5% of your funds on deposit, is that too high? I dont know. Also, I wonder if your counter-party has ever done a credit risk elasticity review of what their customers do. eg, if a cust is trading at some level, and what is the liklihood of a default or your margin money not being enough. Years ago, when I worked for a large IB, we did a study and found of the customers who traded, we would have only called for additional margin 5 or 6 times in a 10 year period and even then it was for small amount. The very top credit/ trading gurus were all shocked by the results. Even when they introduced what they thought were ominous criteria, the results didnt really change drastically. Thats why I dont think sweeping funds into a seg ac is a big deal.