Segregated funds or not?

Discussion in 'Forex Brokers' started by canadaguy, Sep 5, 2006.

  1. I suppose this may sound a little naive but I thought that client funds with most forex brokers were segregated. I see that FX Solutions states that client funds are segregated but when I asked that question of CFOS/FX, I was told that this is not the industry standard...If there is no segregation and no insurance fund, isn't this a little like the wild west?

    Any comments either about segregation or about CFOS/FX? (

  2. Segregated funds is one of the biggest myths of the fx and futures industry.

    If you have funds ina segregated account all it means is that they can't be used to fund the on-going business of the company. However that does not mean your funds are safe. For example if company x has say $100m in a segregated account and a client loses $120m and only has $50m of margin then the bank can use all the other client funds to fund the losses.
  3. Not exactly correct. If a client goes into deficit in a segregated account, the FIRM's assets must be used to satisfy the deficit before other clients' assets. This is why firms constantly monitor maintenance margin requirements and deficits.

    Of course, if the firm's assets are wiped out and other customers accounts are debited to satisfy the deficiency, everyone is in BIG trouble. This possibility is why one needs to have his account with a clearing broker who is conservative about leverage and has significant company "buffer" assets.

    Having your account with the "new kid on the block because of low commissions" could be an additional risk... because they may lack buffer assets.
  4. I have been told that some brokers accept AAA Bonds as security instead of cash, and that that would be the most secure way to trade.
    Anyone knows if that is true, and if yes, how exactly that works?
  5. In retail forex, client funds are not legally required to be segregated from a firm's operational funds and can be subject to the claims of a firm's creditors. As far as I know there are only two firms that offer insured forex accounts. Saxobank accounts are insured up to DKK 300,000 or about US$50,000. Man Financial Canada accounts are insured up to CA$1,000,000 or about US$900,000.
  6. amni23


  7. You know I was just checking this as I have rather more in my IB account than I'm prepared to loose righ now.

    "Futures, options on futures, and single stock futures are not covered, but available cash will be swept from your futures account to your securities account periodically to take advantage of insurance coverage as much as possible."

    This worried me a little not sure if the IB guys would comment on this sweeping. Is it done each night, how much goes to the un-insured portion if I trade a bunch of futures....just the ammount needed for margin? Its odd usually its the futures stuff thats insured.

  8. amni23


    I have made 2-3 attempts to get some info from IB on security of funds and they always point me to the web page.

    This is the max they have said other than pointing to the web page.

    Protection is on the securities side of the account and covers currencies:
  9. Im not getting a link there amni? Still unsure what they mean by covers currencies. Isn't it currency we have on deposit? I was thinking take an unleveraged position in something like the spyders or DJIA to ensure your money is swept into the insured account. maybe make a little on the side too :) Im starting to get a funny smell I hope its not BS or worse rotten fish!


    EDIT: <doh> reading carefully it would appear that indeed cash is covered so as long as it doesnt all go t*t's up while you are carrying a futures or options position it should be good
  10. ids


    This is straightforward. Available cash to sweep is all cash not used for margin purposes.
    #10     Sep 10, 2006