You guys are taking this way too seriously. Your account is segregated. That means it should be safe. There is no 100% safety button in life. Get real You should all focus on trading. 99,999999% of you will lose money due to trading, not because of bankruptcy of your broker.
There's a good question. I don't really know the answer to that one. Personally I've never dealt with an introducing broker. I like to deal directly with the firm that is clearing my trades. I'm not saying that the introducing broker setup makes it inherently more risky, because in the end risk comes from the actions of those who hold the money. The problem though is what input the introducing broker has into the disposition of money. As I said above, Penson GHCO had money with Sentinel. They are also a large clearing firm for various introducing brokers. And Penson was involved in the bankruptcy of Sentinel...you can look up the documents on the internet. How much they lost and whose money it was I don't know...you might be able to find that on the internet as well. Here's what I know: anyone who put money with Sentinel in my opinion was a fool. Here's why amongst other reasons: "The weighted-average maturity of securities in the fund was 33 years, mostly in corporate securities. Only about 6 percent of assets were in overnight loans." referring to Sentinel's prime portfolio. Here's a link to an article discussing some of this: http://www.bloomberg.com/apps/news?pid=20601087&sid=a6W7XECOfjPg Now think about this: Anyone who invested their customers segregated funds with Sentinel put these funds into a portfolio with a maturity of 33 years!!! Why? Evidently the maturity caused the yield to be higher, and THEY (meaning the broker, not the customer) was earning the interest on the money. It was a profit center for the broker. Now, that carried a huge risk. Long term securities fluctuate much more than something like T-Bills for instance. Further, in times of stress like these long term securities may well be less liquid. They may be especially risky because at the time all the customers want their funds back, Sentinel may be unable to liquidate the portfolio without creating large losses, and thus the inability to return the customer money. So again, what happened here is that brokers who placed money here either overlooked the risks they were taking with their customer money, or they purposely took the risk in order to earn higher rates of return on their customer money. Therefore the very first consideration I have about my broker is how strong they are financially. In the Sentinel case for instance, the question is whether the broker could have returned their customers money, if the customers money was lost at Sentinel. Next though, I'd want to know how the broker is holding my money...because the ability for instance to place money at Sentinel is a problem. At Interactive Brokers for instance, any excess funds that are not being used as margin are held in the Universal account and insured by SIPC and 3rd party insurance. You margin is held at the exchange. This is one big reason why I deal with IB rather than some of their smaller competitors. So when you come down to the question of an introducing broker versus the underlying clearing company....my own preference would be to deal directly with the clearing company...but then I would further want to know where and how my money is going to be held. Like I said, Penson got caught up in this Sentinel thing. What were they thinking? Obviously they survived it. Farr Financial was also involved, and is another clearing firm for IBs. At one time you could put your money in T-Bills which served as your margin deposit at your broker. Since I'm now with Interactive Brokers, I don't know what the policy is these days. But if I were out looking for a futures broker, and didn't want Interactive Brokers for some reason, my preference would be for a broker where I could hold my funds in T-Bills. However, I have to say that IB has the best set-up in my opinion with the Universal account. OldTrader
I agree that some of the daytrading margins with Global Futures and Velocity seem low ... but it really depends on how they work the SPAN RISK Software formulas on their traders throughout the day... how they monitor that SPAN RISK with their software every minute of every trading day... to watch their RISK in real time... also, and most importantly... We ALL just went through a Major 100 year Economic BUST Event and Global and Velocity are still standing fine as far as i know... So if they are fine thru that.. then common... ? I would lean more toward Global with your account since your money is going to go into a monster clearer RCG seggregated funds.. ... not so with Velocity...
I believe it is safe to assume that they reached -- foolishly reached -- for more yield. No one can possibly overlook the difference between a six month T-Bill and instruments that mature in 30+ years. It is my belief that the introducing broker is irrelevant -- of no more significance than a sales person -- but when I put the question to "old hands" they agree that it is probably the case but no one seems to be positive. Thanks for your posts. I always either pick up a new fact from them or a point of view I had not yet considered.
I haven't used an introducing broker so I've never looked into this. To be honest I've never really understood the purpose of an "introducing broker".
It seems odd but sometimes the negotiation on commisons can actually be easier at an IB than the clearer and frequently the margin requirements are a bit looser.
A clearing firm that is functioning as a retail broker while at the same time the clearing firm is providing clearing services for introducing brokers has a conflict of interest. The clearing firm must set the commissions for their on internal company run retail broker business at a higher rate than the commissions of the introducing broker they clear for or the clearing firm will not be able to retain the their introducing brokers business. In owning a retail business for 40, I learned that retailers generally do not do business with manufactures and wholesalers that sell direct to retail buyers at less than the suggested retail price.
Not the point. Lehman was in business for 150+ years in September of '08. In October they did not exist outside of a bankruptcy proceeding. I think everyone would agree that Interactive Brokers is a fortress and, if you can deal with their margin practices -- one of many sources of their financial strength -- they will survive almost any event. Counterparty risk can become a reality if a firm fails to segregate properly. Three billion (with a B) was lost in London because Lehman's segregation was improperly done. Real money up in smoke.
I was a broker at REFCO when they had their blowup, and it had nothing to do with futures that were held in segregated accounts. It was with the unregulated FX. I am currently working with Global and like everything there are risks, but keep in mind your funds are held by Harris Bank, not the FCM. Harris bank holds most FCM's accounts, and any failure would bring systemic risk to the global financial markets. If you are interested in leaning more about Global Futures my email is: dbrady@globalfutures.com