Oanda - why you could lose all your funds

[TheBramble]

I’m giving this issue a little more prominence as there still appears to be widespread lack of awareness – and it could potentially seriously damage your wealth.

If you trade with OANDA your funds are potentially at risk.

I discovered this a couple of years back and although delighted with the company’s ethos, it’s operation, financial stability, innovative facilities, execution and support, decided all my risk control and money management were for nothing if at the end of the day, however unlikely it may be, if they went down, they’d potentially take all my trading capital with them.

When I first reported this fact on these boards (see links below) somebody from OANDA assured us they were safe, had more safety margin then was required from a regulatory point of view and had just received considerable additional VC funding. All well and good and commendable. However, within hours of my post which provided a link to their web pages detailing ‘Safety of Funds’ that page disappeared. We were told it was a coincidence and that the site was being redesigned. Two years further on, it’s still not there – and nothing has taken its place.

This issue only resurfaced due to OANDA admitting it had received anomalous data (spikes) from its ‘liquidity providers’ over the week-end (?) which had caused some JPY pair trades to trigger. Although it claims to be busting these trades (quite rightly) I understand not all clients have had their funds repatriated yet. When I mentioned on that thread (3rd link below) about safety of funds, one t2w member had an e-conversation with OANDA last night where they assured him that client funds were segregated. I was surprised about this as I imagined they would have made more public something as important as this, so did some digging on their site, found nothing new and decided to have a little e-chat with them myself.

They initially also assured me that client funds were safe and ‘segregated’. When I pushed a little deeper, they admitted that in the event of bankruptcy, clients could lose some (or all) of their capital. They also said the reason they couldn’t get cover was because they were a US registered company (Uh?).

Why I’m making such a big deal about this is that they appear now to be attempting to cover up their lack of cover for client funds by at best, making misleading comments and at worst, deliberately lying about account segregation.

Transcript of my e-conversation with OANDA below.
Please wait for an agent to respond.
You are now chatting with 'OANDA'
OANDA: Thank you for choosing OANDA. How may I help you?
TB: Does OANDA hold my funds in a segregated account so that in the event of OANDA going bankrupt, my funds would be safe?
OANDA: Yes sir, client funds are held in a segregated account from operational funds. In addition, funds are held in accounts at highly reputable banks such as JPMorgan Chase, UBS, Deutsche Bank, and the Royal Bank of Canada (among others)
TB: Yes, but are they legally segregated? If OANDA went bankrupt, would my funds be safe? I intend to run your response through your Regulatory & Compliance depts as well as the NFA and CFTC so please be sure your response reflects current corporate policy.
OANDA: Thank you, sir.
TB: Are you waiting for me or was that your answer?
OANDA: OANDA is US based company, so there's no way to get CIPF protection at this time, and we unfortunately do not offer segregated accounts.
OANDA: In the unlikely event of an OANDA bankruptcy, all customer funds would be administered by a trustee according to U.S. bankruptcy laws.
TB: So my funds are up the swanny and I join the queue of general creditors if OANDA goes belly up. Is that correct?
OANDA: No, in this unlikely scenario, customers would contact this designated trustee and be entitled to a pro rata distribution of available assets.
OANDA: However, this would not guarantee that you would be able to recover all of your funds.


transcript at at 22:50 CET September 2nd 2009

related links:

http://www.trade2win.com/boards/forex-brokers/fore...tml#post367415

http://www.trade2win.com/boards/forex-brokers/fore...nts-funds.html

http://www.trade2win.com/boards/forex-brokers/72356-oanda-spikes.html

 

[Splitlink]

This is the investigative "nosiness" that we and T2W need. Great stuff!

 

[foredog]

Good research. like isaid before i think if people still want to use them then just keep the minimum necessary for margins in the account and take off any profits regularly.

Then any signs of financial trouble get the rest out.

 

[Hittfeld]

I am a very satisfied customer of Oanda, whom I consider to be an (maybe the only amongst marketmakers) honest and reputable firm. This said, if memory serves me well..... Ohlsen and Stumpf (the owners of OandA - Ohlsen and Associates) are ...... from .... guess where: Switzerland! And if you look further down the road ... guess what: There was a similar firm run by them in Switzerland. ANd if memory serves me well ..... quess what: This firm went belly up!

Regards

Hittfeld

 

[pedro01]

OANDA: Thank you, sir.
TB: Are you waiting for me or was that your answer?

LMAO ! Well done on weeding those details out of them.

I had a similar conversation with Tradestation. Bottom line for them is the SDIC guarantee finds in stock brokerage accounts but the futures accounts are not guaranteed. I presume Forex accounts are the same.

 

[FrankP]

They initially also assured me that client funds were safe and ‘segregated’.

What does it mean segregated? It's boker...they need 100% access to your money. In other case they would have to pay for your loses from their money. So in reality those so called 'segregated; accounts give us nothing as broker still is allowed to do with that money whatever they need.

Thanks for thread. Very good.

 

[everyonerich]

wondered if traditional stock trading account would have segregated or not? but actually this DOESNT MAKE ANY SENSE AT ALL... if the money was segregated, then wouldnt it suppose to mean your losses would have limited? but this is not the case..

for eg: you deposit 1000, if 500 was segregated.. then the maximum loss would be 500? or usually in trading account $1000 can lose it all

 

[chilltrader]

There was a time I used to run around the internet looking for the next best futures/ forex broker in terms of commission etc and almost all were located abroad.

The account opening, deposit/withdrawal of funds (and spillage in forex conversion) used to be a real pain.

However now I have closed all offshore and been using only UK based firms. I can call them up in UK hours, know their address, they are FSA registered and I get to hear a sweet Brit accent (unlike the irritating nasal drawl coming from cowboy land)

I think its a cultural thing.. most firms (especially finance) based in the US will not think twice in hoodwinking the customer by giving false information. Its just too aggresive marketing bordering on the line of corrupt / ilegal practice - the fallout of which everyone has seen.

Its the only way they know to operate (until they go bust)!

 

[ha0dho]

Very good stuff here I always assumed my money would be safe if my broker went bust (a little bit naive). How about with a UK regulated broker like FXCM uk. FXCM claims on there site that my funds would be safe. Are my funds really safe under FSA regualted brokder like FXCM uk.

Forex Regulation

 

[MakkaPakka]

Find me a better broker than Oanda that would be a real find...

Ok,

So Onada client accounts aren't legally segregated.

Legally that isn't an obligation.

Neither were Lehman Brothers' Hedge fun accounts before the big blow up and they were a tier 1.5 investment bank.

Find me a retail broker of 100% integerity... that I will call I real feat of investigative journalism.

cheers,

MP

 

[Splitlink]

Ok,

So Onada client accounts aren't legally segregated.

Legally that isn't an obligation.

Neither were Lehman Brothers' Hedge fun accounts before the big blow up and they were a tier 1.5 investment bank.

Find me a retail broker of 100% integerity... that I will call I real feat of investigative journalism.

cheers,

MP

You are right, in part, but it is not quite the same. Money invested is money put at with the investors knowledge and risk.

Money in an account should be as stated. If it isn't, then the broker is deceptive.

That all these people, be they brokers, banks or what have you are not 100% trustworthy is true, but they should be held accountable, by law, if cash accounts are not held safely.

If we are being naive, then so be it, but there is so much in the capatalist system to be put right and this is one of them.

 

[MakkaPakka]

You are right, in part, but it is not quite the same. Money invested is money put at with the investors knowledge and risk.

Money in an account should be as stated. If it isn't, then the broker is deceptive.

That all these people, be they brokers, banks or what have you are not 100% trustworthy is true, but they should be held accountable, by law, if cash accounts are not held safely.

If we are being naive, then so be it, but there is so much in the capatalist system to be put right and this is one of them.

You are right too and I agree with you

BTW I notice that in my original post I wrote 'hedge funs' rather than 'hedge funds' ... however I have decided to leave the text unedited as it appears to be more correct afterall.

Still looking for that broker on a snowy white steed though.

cheers,

MP

PS. I also note that what the original poster's 'finding' is stated quite clearly in Oanda's Risk Disclosure Statement dated 26/09/06. So although Oanda doesn't offer all the protection one might wish for it is not guilty of deception on this point.

 

[TheBramble]

wondered if traditional stock trading account would have segregated or not? but actually this DOESNT MAKE ANY SENSE AT ALL... if the money was segregated, then wouldnt it suppose to mean your losses would have limited? but this is not the case..

for eg: you deposit 1000, if 500 was segregated.. then the maximum loss would be 500? or usually in trading account $1000 can lose it all

Do you have ANY clue at all what you're talking about?

Jeeeeesus...

 

[TheBramble]

However now I have closed all offshore and been using only UK based firms. I can call them up in UK hours, know their address, they are FSA registered and I get to hear a sweet Brit accent (unlike the irritating nasal drawl coming from cowboy land)!

That's wonderful. But FSA regged or not - are 100% of your funds safe if they hit the skids? Have you checked?

 

[TheBramble]

Find me a retail broker of 100% integerity... that I will call I real feat of investigative journalism.

The onus isn't on me or anyone else to find YOU a safe basis for your funds. That's YOUR job.

All I am doing is highlighting an issue with the lack of awareness many have regarding OANDA.

 

[TheBramble]

]PS. I also note that what the original poster's 'finding' is stated quite clearly in Oanda's Risk Disclosure Statement dated 26/09/06. So although Oanda doesn't offer all the protection one might wish for it is not guilty of deception on this point.

You don't find any hint of deception or at least. providing deliberately misleading statements in confirming to myself that funds were segregated, only to completely reverse that position when specifically pressed?

 

[MakkaPakka]

The onus isn't on me or anyone else to find YOU a safe basis for your funds. That's YOUR job.

All I am doing is highlighting an issue with the lack of awareness many have regarding OANDA.

I didn't say it was your job to do it. Just something you might share with us since the implication behind your posts is that you have found such an ideal broker.

cheers,

MP

 

[TheBramble]

Your edit was too late chum. Do your own hard yards.


{plop}

 

[MakkaPakka]

Hehe fair play.

Being nice is its own reward

cheers,

MP

 

[Jason Rogers]

What does it mean segregated? It's boker...they need 100% access to your money. In other case they would have to pay for your loses from their money. So in reality those so called 'segregated; accounts give us nothing as broker still is allowed to do with that money whatever they need.

Thanks for thread. Very good.

The lack of account segregation applies, to my knowledge, to all US forex brokers. If the forex account is truly segregated, which UK FSA regulation provides for, forex account holders would be considered secured creditors and receive priority in bankruptcy proceedings. Forex account holders are considered general creditors in the US and do not receive priority for their funds.