What happens when brokers go bust?

Discussion in 'Trading' started by angelnish, Sep 4, 2012.

  1. If a broker goes bankrupt what happens to our account balance? :confused:
  2. Occam


    Theoretically, nothing should happen to account assets -- they should just transfer -- but practically, that isn't always true (although it usually is). Google "mf global", "penson", and "PFG Best" for three very different examples of what might happen to client accounts/assets if the broker goes under (or nearly goes under).
  3. Your broker holds your cash and investments in trust. You're not investing in the broker themselves. So if they go bust, and they haven't been using client funds (which is against the law), you suffer no loss. If client funds have been diverted, then SIPC insurance kicks in up to their limits (which I believe are $500k with a $100k max for cash).

    So in general, if you're not using some fly by night broker, you shouldn't be losing any sleep over this.