No futures industry equivalent to SIPC

Discussion in 'Index Futures' started by Kicking, Sep 16, 2001.

  1. Which futures brokers can you entrust with your hard earned money? I recently found out that there is no account protection whatsoever with a FCM. Here is the CFTC's required notice you may find buried in your customer agreement: YOU SHOULD KNOW THAT IN THE UNLIKELY EVENT OF THIS COMPANY'S BANKRUPTCY, PROPERTY, INCLUDING PROPERTY SPECIFICALLY TRACEABLE TO YOU, WILL BE RETURNED, TRANSFERRED OR DISTRIBUTED TO YOU, OR ON YOUR BEHALF, ONLY TO THE EXTENT OF YOUR PRO RATA SHARE OF ALL PROPERTY AVAILABLE FOR DISTRIBUTION TO CUSTOMERS. (B) NOTICE CONCERNING THE TERMS FOR THE RETURN OF SPECIFICALLY IDENTIFIABLE PROPERTY WILL BE MADE BY PUBLICATION IN A NEWSPAPER OF GENERAL CIRCULATION.

    I am new to futures trading mainly because of the 25K rule and as I looked around for a broker I was surprised that most of them do not mention the fact that there is no account protection. I already knew that many futures brokers still have very questionable business practices but I find this quite misleading for example IB advertises on its home page a $10 million account protection but doesn't mention at all that it's only for equities.
    This upsets me because I really don't want to see my life savings disappear with a clearing firm or broker's bankruptcy, and I am not even talking about a collapse of the entire financial system which after what happened last week is not entirely far fetched.
    Now I understand Marty Schwartz 's obsession with gold in his biography "Pit Bull".
     
  2. JayS

    JayS

  3. gemini_315

    gemini_315 Guest

    Kicking,

    I was also very surprised to find out the same when I did some research on this a few months ago.
    It seems that the best one can do is go with a very established and reputable firm, or have a very small account. Of course commissions will probably be much higher than a lot of the really deep discount brokers out there. Keep us posted if you come across any other helpful info in this regard.
     
  4. def

    def Sponsor

    kicking,
    insurance is typically for equity accounts for most brokerage firms. I do not know of any commodity firms who offer insurance.

    As for IB, the front page clearly states 10 million SECURITIES account protection and the link gives more detail specifying security accounts. Thus I hope you still don't think the firm is mis-leading.

    As I can speak for, I'll mention a few items that protect the firm.

    1. no day trading margin
    2. auto-liquidation (i.e. if your account falls below maintenance margin intra-day, a portion of your account is automatically liquidated to bring it above minimum requirements).
    3. real-time mark to market to which calculates the net-liq.
    4. conservative management
    5. can only trade if money is in the account
    6. the firm is financially strong


    the above items reduce drastically reduce the risk of one or more individual traders causing the firm to miss a margin call.
     
  5. Atlantic

    Atlantic

    def,

    what did you mean with "1. no day trading margin" ?
     
  6. def, do you mean that you can basically use your margin only once during one day?
     
  7. No daytrading margin in the case of futures means that they stick to the exchange requirements and don't have lower margin requirements for daytraders. I believe a few brokerages allow you to daytrade with something like $2000 per contract for the eminis. Do you know any of them?
     
  8. def

    def Sponsor

    kicking is correct. you can trade in and out as many times you desire per day. However, you will not be allowed to enter a trade unless the initial margin is already in the account. As soon as you close a position, the account is credited real time.

    Offering lower rates for intraday positions is not a risk IB is prepared to take.
     
  9. Atlantic

    Atlantic

    thanks for the answer def!