financial security of spreadbetters

Can someone direct me to any reviews/analysis regarding the balance sheet strength of the spreadbetting brokers please.

reeg said:

Can someone direct me to any reviews/analysis regarding the balance sheet strength of the spreadbetting brokers please.

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Afraid I can't. But I'd never leave any more money than I have to with any financial institution. Just a shame I can't apply that to the Government also!

Publicly traded ones like London Capital Group and IG Group have balance sheets on their investor info sites.

I understand the founder of citindex recently had to pump money into it... really it's not the balance sheets that you need to be worried about, it's their risk management procedures, and I have no idea how you could find those out.

Yes, the accounts have to be segregated "ring fenced" as some SB call it. I agree, there are way too little transparency when it comes to the security of SB accounts. In fact, all we have to rely on is the SB company word on it. A security regulated financial account status should be applied to all SB companies, so we as account holders know where we stand.

Bear in mind that the client accounts are only ring fenced from the firm, not from each other... and basically your major risk is other clients... so the ring fencing isn't that useful

arabianights said:

Bear in mind that the client accounts are only ring fenced from the firm, not from each other... and basically your major risk is other clients... so the ring fencing isn't that useful

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If the accounts are fully sercured, insured and segregated this is not an issue. Each SB account should be insured by the goverment, giving "bank status" to SB accounts. In case of a SB bankruptcy you will have the same protection as an ordinary bank account holder. This is the case with some of the SB companies, at least that is what they told me.

arabianights said:

Bear in mind that the client accounts are only ring fenced from the firm, not from each other... and basically your major risk is other clients... so the ring fencing isn't that useful

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Technically I'm not sure that your comment is correct. The so called 'ring fence' is a protection which the client receives which prevents creditors of the firm from claiming 'client funds' in the event of the firm going under. In other words client funds are not classed as assets of the firm.

You say that the risk is from other clients but this is not so. The firm cannot use one clients funds as a deposit to underwrite another clients position - such funding can only be taken from the account of the client who is taking the position. Any additional funding can ONLY come from the funds of the firm. Therefore, in theory, there can never be a situation where other clients funds are put at risk by the actions of one or more clients.

Steve.

Thanks for your replies. My concerns are that due to either fraud or client losses, the spreadbetting firm has insufficient capital to cover the losses. While my first £50k (or so) is protected by the government, is the remainder? What happens to open trades - would there be a situation as per Lehman where it takes time for open trades to be closed out (regardless of stop losses) and would there be difficulty in obtaining info re the state of positions from administrators. I think it will be difficult to obtain answers to the above and given the current economic climate, I'd rather be paraonid - is anyone aware of any of Global Finance's recently published "50 safest banks" which allow independent self employed traders to trade futures via them? Cheers

stevespray said:

Technically I'm not sure that your comment is correct. The so called 'ring fence' is a protection which the client receives which prevents creditors of the firm from claiming 'client funds' in the event of the firm going under. In other words client funds are not classed as assets of the firm.

You say that the risk is from other clients but this is not so. The firm cannot use one clients funds as a deposit to underwrite another clients position - such funding can only be taken from the account of the client who is taking the position. Any additional funding can ONLY come from the funds of the firm. Therefore, in theory, there can never be a situation where other clients funds are put at risk by the actions of one or more clients.

Steve.

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Fair enough!

Reeg,

There is always room for fraud and firms failing to follow the correct rules. My guess is that most firms will keep client's money in tier one banks which should technically be the safest around. If you are asking; "Is my money as safe in a spread betting account as it is in my Barclays account at 57 High Street, Anytown?" then the answer is most likely "No" simply because there are more complications with having money with spread betting firm.

You questions regarding open positions are perfectly valid. At a guess I would say that most of this would be covered in the T&C's of each firm. From memory most firms specify that they will close out positions at the current market price if such an issue (as the one you outline) occurs (a 'force majure' event). Obviously that in itself presents risk since your position might not be a naked one - you may have a balancing position of some kind in another market or with another firm - this occurs often if you write options and then balance some risk by buying and selling futures.

There could also be an issue with the deposit margin on your position before the firm closes it. Technically they can take money from your account to cover your deposit on an open position. Therefore there is a 'grey area' with regard to your rights to this money if they went bust whilst you had an open position.

Steve.

reeg said:

Thanks for your replies. My concerns are that due to either fraud or client losses, the spreadbetting firm has insufficient capital to cover the losses. While my first £50k (or so) is protected by the government, is the remainder? What happens to open trades - would there be a situation as per Lehman where it takes time for open trades to be closed out (regardless of stop losses) and would there be difficulty in obtaining info re the state of positions from administrators. I think it will be difficult to obtain answers to the above and given the current economic climate, I'd rather be paraonid - is anyone aware of any of Global Finance's recently published "50 safest banks" which allow independent self employed traders to trade futures via them? Cheers

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I think you are overreacting. If you trade in a higher league SB is not an option anyway. You have to look at DMA brokers where accounts are completely segregated and insured, like Interactive Brokers. Still the accounts are insured up to a certain limit, the same rules as for bank accounts, $250.000 I believe it is for the USA, I am not sure about this figure.

50K is all you are covered for.

However the likes of IG Index still offer credit accounts if you qualify.

donaldduke said:

50K is all you are covered for.

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Does that mean that we are insured up to 50k with spreadbetting companies and all other brokers in the UK?
If not, what amount is secured with:
1.Spreadbetting companies?
2.DMA brokers?

If this is of concern have multiple accounts.
Global Futures (USA)
Plus use spread capital over 2-3 UK SB Firms (IG example )
Then again trading with over £50K is only for the few not the majority.

I have ofshoure accounts with brokers/SB Firms deatails ready linked to a personell banker, when I phone the cash is instantly wired. With USA accounts due to exchange rates/ clearing for money laundering reasons there is a 3-5 day delay.

So who will be the next broker/bank/ even SB firm to close ?
We have seen the worsed of that, just how much the losses are will take time to surface, then again after the mark to market has been virtually scrapped banks can ajust there books to what ever figure they need.
Here we go again LOL