When you leave retail online brokers, third-party futures platforms are all set up that way at the FCMs-CQG, Rithmic, CTS T4, TT etc. That is how they monitor risk. Risk and margin are not the same. I do not for products, but I'm not going to post publicly without permission our financial requirements because we do not want regulators saying clients will just pick numbers greater than that to get approved when they are accurately lower. I'd like to continue to post here. It has not been an issue. If a client does not want options or VX futures, they can trade most liquid futures on RT without any approval.
That is why I keep on speaking out against any sort of FCMs, they are utterly outdated. By the way this has nothing to do with retail. Outside the US there are tons of full fledged professional brokerages that do not operate as you described FCMs. I traded listed futures and options and futures options, and spreads in professional prop capacity with Goldman, Samsung Securities, Newedge, Nomura, and many others and we set up credit lines with them and were given initial and variation margin levels each day and that was it. Not a single broker negotatiated or set number of contract limits other than those stipulated by the exchanges. I find the reasons for withholding of requirements an excuse. If you truly cared about true figures you would not let prospective clients choose their numbers on their own but required bank statements and tax filings.i am not singling out your firm, this is a plague with he entire American FCM bunch. Other non FCM brokers even in the US transparently post their requirements. My gripe here is with all FCM shops and their outdated and often outright arrogant and secretive attitude, I am not attempting to single you guys out. The only way to wash out those outdated approaches to handling brokerage is by voting with our pockets and hence my being active in this space to promote and recommend brokers who are transparent in their commission charges and trading limits. It's a major inconvenience and trouble to have to phone up each FCM and get the used car salesman pitch and other BS when those brokers can anyway tell you whatever figures they want only to change them once clients onboard. There are still way too many middlemen in the American brokerage industry, each biting another couple basis points out of the pie.
Agree with GRULSTMRNN,point of view! I have great expectations when I open an account in TD. Now I hope to be disappointed. I can only say that the platform is allegedly management, and the head is stiff and stubborn!
If the brokerage is going to take on risk by offering you margin, why should they not do some sort of background check like knowing your liquid net worth, income, etc.? They're protecting themselves, and their shareholders surely appreciate that. If it frustrates you that they need such information then you can always try to find somewhere else to open your account. Is it any more complicated than that?
Let's not confuse different issues. I am in full support of KYC and providing information so a broker can vet me and does its due diligence to better understand the source of funding. A margin loan is fully collaterized by the paid-in capital NOT by the wealth and assets an investor owns but did not pledge as collateral. Offering ridiculously low margin levels to trade certain futures and at the same time claiming to protect themselves and their shareholders is a direct contradiction. What can easily bankrupt a broker is when it allows its clients to trade in way too large size (motivated by low margin rates) and when a black swan event hits it not only wipes out the individual client position but the broker is required to make whole on the difference while being unable in most cases to recover a single penny from said client above and beyond the paid in capital.
This sounds like an experience I had about a year ago where a brokerage (who had been taken over by another company) I had been with for over 10 years (with PM) asked me to complete a "personal guarantee" form saying that I was responsible in case of a net debit on the account. I was appalled because to me, the whole concept of margin is the brokerage reflecting what level of risk they are willing to accept whether that be net short option contracts or otherwise. Too much risk for them? Raise my rate (e.g. stress at 12% rather than 10%). But to ask me to sign an additional guarantee for a Black Swan event? That didn't seem right. Besides, what if I had no additional assets? My lawyer advised I not sign the guarantee and as a result, my PM was effectively revoked (or raised to 25%). I transferred the assets to another firm.
Well done, voting with our pockets is how we exercise power in this industry. As long as brokers' long term interest is not aligned with clients, clients should be suspicious towards brokers by default. Some retail brokers or FCMs pretend that moving 500k or 1mln balances does not impact them but truth is losing several such accounts rips a hole into their balance sheet. Several cases where brokers put into their fine print that clients are responsible for debit balances beyond the invested capital did not hold up in court. That is why several fx brokers let clients "off the hook", not out of generosity but because they knew they can't win their case.
I would need to Google as much as you, I just recall having read about past cases. Focus on the Swiss Euro depegging and the brokers that had to let clients off the hook because of unenforeability For futures and other exchange traded products the burdon of proof on the broker part is incredibly high. They have to show that the debit balance arose from a market event that the broker had no chance of preventing. That means the broker had no ability to cut the position prior to the client balance going negative. Generally that is not easy to prove and even during the flash crash only very few seconds occurred where brokers could not get any fills. Judges don't take lightly the excuse that the broker "felt" reasonable execution could not be had hence the broker did not submit an order. So the onus of proof always lies with the broker. And attorneys know that and there is lots of wiggle room to negotiate an off-court settlement.