Open positions and bankruptcy of a spread betting broker

[remme001]

I realise that regulated brokers hold client money in segregated accounts backed by FSCS protection however what I don't fully understand is what happens to a clients open positions in the event of the spread bet broker going bankrupt. Say I have an open position that is up 100% the company goes bankrupt would my open positions effectively be considered closed at the time of bankruptcy and the amount compensated be my client money plus the 100% I was up on or would it just be the client money?

In some situations I know that when it comes to administration sometimes clients are moved to another broker. A recent example being Alpari clients being transferred over to ETX capital. I'm wondering if this included their open positions too.

Currently my open positions with my spread bet broker typically last months if not years thus potentially exposing me to a risk of not profiting from my trades if my broker was to go bankrupt. If I held a bunch of positions for years and theoretically be up 200% only to find out that one day my broker has gone bankrupt and that I'll only get back the amount I initially traded then it's something I need to take into account in comparison to a regular stockbroking account where the stocks held by the client in the event of a brokers bankruptcy would still effectively be retained as an open position as the client has ownership of the shares.

 

[gle101]

I realise that regulated brokers hold client money in segregated accounts backed by FSCS protection however what I don't fully understand is what happens to a clients open positions in the event of the spread bet broker going bankrupt. Say I have an open position that is up 100% the company goes bankrupt would my open positions effectively be considered closed at the time of bankruptcy and the amount compensated be my client money plus the 100% I was up on or would it just be the client money?

In some situations I know that when it comes to administration sometimes clients are moved to another broker. A recent example being Alpari clients being transferred over to ETX capital. I'm wondering if this included their open positions too.

Currently my open positions with my spread bet broker typically last months if not years thus potentially exposing me to a risk of not profiting from my trades if my broker was to go bankrupt. If I held a bunch of positions for years and theoretically be up 200% only to find out that one day my broker has gone bankrupt and that I'll only get back the amount I initially traded then it's something I need to take into account in comparison to a regular stockbroking account where the stocks held by the client in the event of a brokers bankruptcy would still effectively be retained as an open position as the client has ownership of the shares.

Yes a valid question indeed. I am also looking forward to someone who knows the answer to this matter. Highbury fx is someone who is in the business, he probably got the answer to this important matter.

 

[schlongerdinger]

As an ex Worldspreads customer I can tell you that they closed positions out on their day of reckoning closing any profit or loss at the market price at that time. Great if you're onto a winner not so much if you're averaging a loser and need the money in the account to trade out of said loser then watching it turn into a winner whilst your funds are frozen for months in the hands of the administrators. Great reason to run multiple accounts.

Other brokers may be totally different. Make sure all funds are protected

 

[remme001]

As an ex Worldspreads customer I can tell you that they closed positions out on their day of reckoning closing any profit or loss at the market price at that time. Great if you're onto a winner not so much if you're averaging a loser and need the money in the account to trade out of said loser then watching it turn into a winner whilst your funds are frozen for months in the hands of the administrators. Great reason to run multiple accounts.

Other brokers may be totally different. Make sure all funds are protected

I suspected this would happen and you're right it's fine when you're up on a position but not great if it's down. I guess I should contact my broker if I want to be sure though.

 

[peakoil]

Long Winded Preamble: The following submissions are offered by a relative stranger, who has somehow found a few minutes spare on this bank holiday weekend, and such are duly submitted for all interested parties, over the internet (...of all things). Moreover, all submissions to follow are unquestionably offered on a DYOR basis: Come to think of it - please do seek your own independent and reasonably competent advice; and that is regardless of whether you find any sense in what I'm about to say. Not all do, I might reluctantly (...yet, while I'm at it) add. Besides, while writing these words,I doth confess that I am in jestful bank holiday form, and not at all 'suited up'. Make of that what thou will. Besides which, what is hereby stated below is intimated by someone who's intellectual capacity (or lack thereof - for want of a better term) is today largely tempered by a pronounced degree of sleeplessness. Now, having said all that, at last (...at last zzzz zzz zzzz, thank f***!) we've reached the end of peakoil's bank holiday preamble.

-

The lasting lessons from the 'Worldspreads debacle' are approximately these:

(1) Never spread bet with money that you can't afford to lose. AKA 'The Golden Rule'.

(2) Should administrators ever happen to oversee affairs, then you'll surely find that the retail client is not usually a 'preferred creditor' - and so your getting any money back, once positions are frozen, will almost be guaranteed to be a fantastically protracted/time testing process... AKA the: "why are we waiting, why are we waiting, why are weee way...ay...ting? etc" Rule :-/

Nonetheless, (3) if you happen to be spreadbetting with sizeable sums of money, then 'twould be wise to ensure that your wherewithal is indeed 'spread' around several time trusted and properly regulated bodies. AKA 'the nay keep ye grandma's eggs in ye one thatched basket" rule

While I'm at it, there is also (4): avoid any offshore entities which just happen to be regulated by any non-UK 'gaming commissions', unless you enjoy worrying whether your money is safe). AKA the "I like to sleep at night" rule.

(5) As long as you're using a properly regulated (i.e., FSA) SB firm, then it would be prudent both to ensure too that your funds are always held in a segregated account, and importantly that your chosen SB companies are all (without exception) covered by the usual FSCS compensation scheme for the first £50 K. AKA the" keep your preferred papers in a place that's just so safe - that even them great powers above us would gladly indemnify its safety, at least to a very large extent and then beyond which, you're on your own" rule.

Should one follow the above course of action at all times, then this subject really shouldn't be something to which anyone who is a retail client of any 'proper' SB firm (...likely the vast majority of us) should be worrying about! AKA the "don't worry, be happy. every little tings gonna be alright" rule.

Again, it cannot be stressed enough that to place your money with any firm that is not covered by the FSCS scheme, is foolhardy in the extreme. Such really cannot be stressed enough: if you still entertain any 'regulatory doubts', then you should check both with the firm itself *and* also with said UK authority. AKA the "this rule is certainly one worth following, nevertheless if all them other rules above don't make sense, then it's unlikely this one will either" rule. But it should!

And BTW, the rest is up to you.

HTH.