Security of funds

[Jeff - Axiory]

Hi everyone,

What would make you feel 100 percent confident in a broker?
There has been some recent discussions on other forums regarding security of funds, and I think this is a big concern for many people starting out.

Is there something you always look for with a broker in terms of making you feel confident with your funds. Also, how transparent do they need to be in order for you to start using them?

Regards,

Jeff

 

[The Leopard]

Hi everyone,

What would make you feel 100 percent confident in a broker?

Not having any money with them.

It is always going be difficult - whatever rules or systems are in place, people can always cheat. My answer above was not flippant - you asked about 100%, which in my view is impossible.

Transparency always helps of course, as does being located in a country where there is effective and sensible regulatory oversight.

 

[Martinghoul]

For a start, all accounts held with this broker need to be guaranteed by a relatively credible deposit insurance scheme (e.g. FSCS). It also helps if the broker is publicly traded, so that you can be short its stock as a calamity hedge (although you'll need to do it with another broker, which begets a bit of a chicken 'n egg issue).

 

[Jack_Larkin]

Not having any money with them.

It is always going be difficult - whatever rules or systems are in place, people can always cheat. My answer above was not flippant - you asked about 100%, which in my view is impossible.

Transparency always helps of course, as does being located in a country where there is effective and sensible regulatory oversight.

It's actually not very hard to find brokers who will work with that arrangement.

It's called custodian banking; You keep the funds at a local (to the broker) bank, and you sing a bank guarantee with the broker allowing them to net out the difference on your trading account at the close of the day. Your buying power is set based off your account balance.

Example:
http://www.dukascopy.com/swiss/english/forex/custodian/

 

[The Leopard]

It's actually not very hard to find brokers who will work with that arrangement.

It's called custodian banking; You keep the funds at a local (to the broker) bank, and you sing a bank guarantee with the broker allowing them to net out the difference on your trading account at the close of the day. Your buying power is set based off your account balance.

Example:
http://www.dukascopy.com/swiss/english/forex/custodian/

What if the bank goes down?

 

[Jack_Larkin]

What if the bank goes down?

You're picking between banks like Merrill Lynch and Barclays in the example I gave...

Then there's the local government's insurance programs (again, in the example, the Swiss government has a deposit protection plan in place for all registered banks that covers up to CHF 100’000 in case the bank fails.)

But really... no different than the risk you take on with the bank that operates your chequing account going under. The point was to keep your funds in your own name and separate from the broker (you can actually use it as a normal bank account, since it is just that.)

 

[The Leopard]

You're picking between banks like Merrill Lynch and Barclays in the example I gave...

Then there's the local government's insurance programs (again, in the example, the Swiss government has a deposit protection plan in place for all registered banks that covers up to CHF 100’000 in case the bank fails.)

But really... no different than the risk you take on with the bank that operates your chequing account going under. The point was to keep your funds in your own name and separate from the broker (you can actually use it as a normal bank account, since it is just that.)

Exactly. Absolute security is simply unobtainable.

 

[Jack_Larkin]

Exactly. Absolute security is simply unobtainable.

Of course. Just do your best to be reasonably secure, and government backing (protection/insurance programs) doesn't hurt either.

 

[Jeff - Axiory]

I think my 100 percent was a little off the mark. My point was really to what degree of security do you look for?

 

[The Leopard]

I think my 100 percent was a little off the mark. My point was really to what degree of security do you look for?

As much as possible.

Be adequately capitalized, and be transparent. Locate yourself somewhere that's not dodgy. I'm not sure what else you can do really.

 

[wildpigeon]

It's actually not very hard to find brokers who will work with that arrangement.

It's called custodian banking; You keep the funds at a local (to the broker) bank, and you sing a bank guarantee with the broker allowing them to net out the difference on your trading account at the close of the day. Your buying power is set based off your account balance.

ARE THERE ANY UK BROKERAGES THAT OFFER CUSTODIAN BANKING SIMILAT TO DUKASCOPY