Jim, I could be wrong, wouldn't be the first or the last, but I am referring to futures if you read my post not equities.
Sorry, dandxg, I misread your post. You were indeed talking about futures, while I was talking about equities. It is a good thing that IB has tougher futures margin requirements than many other highroller futures brokers. IB's stingier futures margin policy greatly reduces the risk that IB will be bankrupted by large uncovered customers losses. This, in turn, greatly reduces the risk that IB retail futures traders will suffer losses resulting from broker bankruptcy. Remember that there is no deposit insurance for property held in futures accounts. You can lose your entire futures account, even if all your trades are profitable, simply because your broker is bankrupted by the need to cover losses experienced by other highly leveraged customers.
Jim, no problem. I will research the protections available to me say through Velocity Futures. I believe the Refco futures customers are/were ok, just the FX customers that got wiped out. Correct me if I am wrong, but I thought all futures accounts are segregated unlike FX? That is one of the reasons why I am leary of FX. It seems like an unregulated casino. I was recently warned by a 20 year trader that one should never deal with a self clearing futures firm. That's were the big problems can arise, as they can monkey with the books easier.
Your reasoning makes no sense. Just because you think customers did not lose money in one particular broker bankruptcy doesn't mean that the same result will occur in future broker bankruptcies. Some futures broker bankruptcies, other than Refco's, have certainly caused customers to lose money. If you do some more research, you will also find lawsuits regarding an alleged $1 billion dollars missing from the accounts of Refco futures customers. Ask these futures customers, including Jim Rogers, who claim to have lost $1 billion in the Refco bankruptcy, if they are OK. Yes futures accounts are "segregated", but I don't think you know what this means. It means that the property held in your futures account is lumped together with the property of other customers in a "pool". The pool is segregated from the broker's assets, but your property is not segregated from the property of other customers. If other customers are unable to meet a margin call needed to cover a large loss, and if the broker's capital is insufficient to cover the resulting deficit in the pool of customer assets, then you will be whacked by a partial or total loss of your account property, in order to help cover the loss created by the losing trades of other customers. You can also lose all your money if the broker simply decides to embezzle it from the segregated pool of customer assets. Futures accounts are called "segregated" because the fact that they are segregated from the broker's assets means that the broker cannot use customer property to cover debts of the futures broker, other than those arising from uncovered customer losses. Refco repeatedly and routinely violated segregation requirements, by temporarily using customer funds to pay Refco's debts, and then paying the money back into the segregated account, and then repeating the cycle over and over again. If a Refco bankruptcy had occurred while funds were being "borrowed" in this way, Refco customers could have lost part or all of their accounts, simply because Refco was misusing customer funds. So, you can lose it all, in a futures account at a bankrupting broker, either because other customers and the broker's capital can't cover large losses caused by other highroller customers, or because the broker simply steals your money from the segregated pool of customer assets.
Thanks Jim, I need to get better informed. Would you agree that I am safer with a futures broker that doesn't self clear their own transactions or not? I am interested in hearing other trader's opinions. Thanks in advance.
Thanks for good explaination Jim I have partial funds stuck with RefcoFX.. the only thing to do now is praying that I'm gonna get my money back..