After PFG - Warning signs to look for?

After reading the news about PFGbest, were there any signs that served as warning signals to traders who had accounts with them that something was going on before it happened or were they completely blind-sided? I am asking this out of curiosity but also because it makes you think. I'm starting to become a bit more nervous about having my money with any brokers. In other words, as an average trader, how would you have any insight into the inner workings of your brokers or know what to look for as an indication of pending broker doom?

Fraud, i.e. outright theft of customer segregated funds, is the result of a broker in financial trouble who has to choose between filing for bankruptcy and taking customer funds to keep operating. Old Wassendorf declared that his pride prevented him from admitting defeat, so he cheated. You can expect this to happen again, it's human nature.

It is my opinion that far from relying on the regulators to do their job (there shouldn't be doubts about that now, right?), you need to be constantly aware of the financial situation of your broker.

How? Check out a company called Atlas Ratings. They publish a rating list with an evaluation of all US FCMs. This is a subscription based service.

You are asking if there were any signs that might have alerted PFG customers. Sure there was, PFG was in the bottom fifth of the table published by Atlas, one of the worst in terms of financial situation.

Thanks for the tip on Atlas Ratings rod_falcon -- that looks like it could be really helpful and also a good way to figure out which brokers to use. I can't believe I hadn't heard of Atlas before.

Any firm offering fx and cheap spreads.

PFG is just the tip of the iceberg. Plenty of firms out there where owners have already spent their clients' funds ahead of actually moving them across the divide through slippage and client losses.

Since the 80s the mantra of the old retail futures and fx markets has been that client funds on deposit were yours and it was just about how you went about moving them over the divide. At any given time there will be a % of firms who don't want to wait for natural causes and dip in a bit early.

The guys who were on the 'dealing' desks in the 80s own the brokerages today.

I would urge a little caution in the Atlas list. I think it is somewhat useful for pure FX brokers, although obviously when fraud is being committed, it didn't matter that PFG had $220 million in net capital or whatever.

Having said that, there are some firms pretty deep down the list that I would question in terms of really being risky because the capital that they show for their FX division is not necessarily representative of the whole company when they have other trading departments and divisions. For example, Morgan Stanley is pretty far down the list, but give me a break. Or Credit Suisse Securities (USA). Obviously, they are backed by a much bigger global entity that would be on the hook. Gain is publicly traded, so obviously they have assets. MB Trading has multiple divisions, including ones where they have to post cap for SEC and Finra. You can't just assume that this list for companies like that tells the whole story. Now, when you see FX Solutions, or Forex Club, or Advanced Markets down the list, well, that might be a warning sign. But I wouldn't just take the order on this list as face value. As usual, do some extra research into the background of these companies. Find out their history, check and see how many times they have been fined or lost arbitrations. Remember, a couple of small arbitrations lost isn't necessarily the end of the world. Repeat offenders might be.

how many here know the credit rating of their broker?

Another broker crook down, how many does that leave?

BBC News - Peregrine Financial Group boss admits $100m fraud

Having been through the MFGlobal situation last year, I think one way to be a little safer is to have your money not in the US (sorry American's.) It appears that the likes of Corzine feel they are above the rules but they seem to only bother to act within the US. My money was with MFGlobal Canada. It took two months to get it back, but at least I got it back in full. I am looking for a new broker, and although IB is my first choice, as an Australian, I am not guaranteed that my money will remain in Australia under an ASIC regulated subsidiary. So i am still considering my options.

Also, personally, I wouldn't trust the government to guarantee savings. Remember that it is a 'confidence game.' When push comes to shove, and the numbers are high, you might not get compensated or if you do, it could take longer than you your back-up savings permit.

Keep the minimum amount you need to cover margin, and keep the balance in a bank and readily transferable upon margin call.