How safe are my funds with a (US) futures broker?

Discussion in 'Index Futures' started by bankroll, May 29, 2013.

  1. I heard about the US FDIC scheme for bank accounts but what protection is provided for your futures broker?

    I heard about brokers go belly up before.
  2. There are no guarantees. It's up to you to perform due dilligence on brokers before selecting one. Some are fly-by-night and others are conservative in terms of customer fund segration.

    Recall how back in 2008 money market funds nearly broke the buck. Most brokers sweep cash into money market funds so there's systematic risk too.
  3. your funds are not insured .

    besides outright theft a futures broker could become bankrupt through sheer incom-
    petence which is how I class MFGlobal's collapse, although they also circumvented
    various regulations
    then there's the problem of a bankruptcy action where non client claimants try and
    grab whatever money exists rather than the clients being the first to be re-paid, which
    may result in not receiving funds for months if not a year or two

    bottom line is, your funds are not insured .
  4. mokwit


    With futures brokers it is made to look as if you have some kind of protection on casual inspection. Actually what can happen is if a big customer of a broker incurs a huge loss they can take (STEAL) the funds of the other customers to make up the loss to the exchange. Note, they don't go after the assets of the failed trader or brokerage seat executives owners, they can dip into other customer funds.

    So now you know why big floor traders had pesky retail accounts.

    Chicago is run for the benefit of the exchange members at the expense of customers IMO.

    I had money with Refco and found out about the sham lookalike protection around that time having not read the small print sufficiently. My funds were in the CFTA side of things and that is what I am referring to above.

    Lawyers contended that within the non CFTA side as the customers had received a return on their funds by effectively authorising Refco to invest on their behalf these CUSTOMER funds were therefore somehow Refco funds and could be used to pay creditors. IMO how does that fly other than with a tailwind of utter dishonesty and absence of integrity?

    With Interactive Brokers funds are swept into equity (FDIC?) protected silos overnight. Better than nothing/Chicago. No connection with IB other than as a customer for 10years.
  5. ofthomas


    not only that, but IBKR also allows easy connection to bank via ACH... which makes it rather easy to transfer funds in and out and keep only what you need to trade...

    then again, that assumes the banks are "reliable" and wont go belly up either...

  6. Funds swept from futures account into stock account are not FDIC protected and not SIPC protected either unless used/intended to purchase stocks as per clarifications from IB, SIPC and NASD in last year.

    To be SIPC protected, funds must be deposited for purposes of investing in securities as per the SIPC law. Idle cash swept from futures account does not meet this criterion.
  7. mokwit


    Thanks for clarification/update - missed that. Is there some way that can designate/confirm funds are for stock purchases. Complicating/eliminating factor might be that I am not US National and not purchasing US stocks.
  8. Would be interesting to read some insights on that.
  9. mokwit


    Hunt Brothers would be able to fill you in on that. Something about the casino owners changing the rules so they did not lose.

    You could also look at the old floor rules on bidding that made it possible to run stops at very little risk, or you could think about front running. etc etc
    #10     May 30, 2013