How much cash is safe to keep at one broker?

Question for you folks -- how much cash/funding do you generally keep or feel it is safe to keep at low cost brokers (IB, MB Trading, etc)?

For example, let's say hypothetically you have somewhere between $700k - $1MM in investable funds, how do you approach the following:

1) Do you keep your investable funds at a single broker, or do you divide it amongst several brokers?

2) How much cash would you be willing to keep at a single low cost broker?

3) If you do apportion the funds amongst many brokers, what factors drive the allocation?

4) What are the substantial risks involved in the various approaches?

5) If you are a short term trader, do you apportion some funds at low cost brokers for short term trading while keeping other funds at large financial institutions in longer term accounts?


I'm interested in hearing anyone's thoughts on the matter.

Thanks,
HB

 

no takers on this question?

 

Did you look to see what the insured amount of each account is? I'm sure that will be the answer.

 

I can tell by your great selection of questions that you will carefully come up with the best answers for your own risk tolerance. For my self, I assume any cash balance over 100,000 is exposed and the amount of risk exposure depends on the broker and the clearing firm where the funds are held. I do not think large financial are safer than well chosen smaller brokers. Both of the brokers you mentioned would be on an approved list I would come up with. IB has the best of account management and security procedures to protect IB and IB clients.

 

Futures accts are not insured

 

Since futures accounts are not insured, how often do the firms go belly up? Is there any other way to protect it?

 

I have $300-400k with Scottrade, about 2/3 of which is currently invested and the rest is sitting in cash. Longer term stuff, dividends, swing trades, etc.

I also have around $50k with OEC in a futures account which I occasionally make withdrawals from into my bank account. It's way more than I need to cover the style of trading I do, I just like to have around that much in there.

I trust that both Scottrade and OEC will be there tomorrow so I'm not worried. I've been to Scottrade offices many times and I've talked to OEC on the phone many times.

I wouldn't keep any money with shady fly-by-night brokres or Forex brokers, though.

 

I agree with Catoosa who said that your long list of questions suggests that you will be able to answer these questions for yourself given your own situation.

You may take comfort in having account(s) at brokers that are listed entities. There are some benefits, such as:

(1) stock price can be used as a proxy for the stability / solvency of a firm (eg. think of Refco, Bear Stearns, Lehman), and a valuable information source / guide of when to take your money from a firm and run

(2) information (both regulatory filings and commentary) about publicly listed entities is generally easier to find than it is for private companies.

(3) stock can be used to hedge your exposure to a particular firm. Eg. you have $1 million at firm A and $500k at firm B. Stock price of firm A starts to crater, so you use your account at firm B to short / buy puts / short calls on the stock of firm A. If you are unable to (or choose not to) withdraw your money from firm A, then your short position in the stock of firm A could be considered a hedge against your exposure as a creditor of firm A.

**

While there are benefits to diversifying your money across two or more brokers, it's important to only have accounts where you feel your money is safe.

ie, if you had $100 million, no point in having $5 million at 20 brokers if 15 of the 20 brokers fail and you only get back the SIPC insured amounts.

 

Brokerages or Clearing Firms are required to keep client funds in a separate customer segregated bank account for your safety.

 

refco