What is the difference between a futures account and a brokerage account?

Discussion in 'Trading' started by drukes1234, Nov 20, 2008.

  1. I understand that futures accounts are not covered by SIPC or CIPF but brokerage accounts are. What is the difference between futures and brokerages accounts though at a firm like IB where you can trade both? What is the coverage?

  2. Only stocks, bonds, options, mutual funds (correct me if I'm wrong here) are covered by SIPC but unless you're holding futures for an extended period of time they're also "cash" so they would also be protected.
  3. Surdo


    CASH in a futures account is NOT SIPC insured.

    Read the CFTC rules on use of "segregated funds".

  4. No cross margining. This is a big issue for hedge funds and alot of investors who hedge their stock portfolio with futures. If you do so, you need to put up margin on both sides. You're getting a double haircut. SEC / CFTC are far apart on this.
  5. You generally lose your money in the futures account more quickly than in a brokerage.
  6. IB is a bit unique with their Universal account. If you are not actually in a futures position, they roll all cash into the same accounts as the other asset classes, and this is protected. They also have third party insurance of funds, etc.

    A straight up futures account is not protected, but in terms of safety, there are no worries except in cases of fraud. If a firm goes under, the accounts are passed to another firm by the NFA. In fact, since the current system went into effect in the '70's, no one has lost a single penny from a futures firm going under. This is a direct quote from the chairman of the CME a few months ago. I got it from a SFO magazine interview, but was something I already knew. This is why funds are segregated. In cases of fraud, where the funds were not segregated, you are screwed, and the officers at the firm go to prison. This actually happened to me years ago at a firm called FuturesWise Trading. Full on case of a guy who ran an IB (not to be confused with Interactive Brokers), just flat out took customer money, and used other customer money for payouts to clients (Ponzi scheme). His name was Snively, and he was just recently released from prison. The scary thing is I checked him out with the NFA and CFTC and he was golden, but new. Stay with the major FCM's, or IB's that clear through them and you will be fine.

    BTW, in the Refco meltdown, only fx traders got screwed, not futures traders. Forex has no protection whatsoever.
  7. I have had these questions too about Futures acct.

    Thank you Jayford for a very useful explanation.

    I'm thinking of opening an account with OpenECry. Would OEC in your opinion be a safe bet , though OEC won't qualify as a major FCM ?

    Also in an equities account, does SIPC over you in case of fraud by the brokerage ?

    >>>>Stay with the major FCM's, or IB's that clear through them and you will be fine.