How protected are you funds - really!

Trading Discussion
#1

So I have been involved in a couple of threads recently about leverage and how we can use leverage to protect our capital by minimising how much of our capital we keep in our broker’s account. Personally, I keep 10% of my funds with my broker and the balance in a cheque account linked to a visa debit card. This allows me to move my funds freely and instantly with my broker and protect my capital…

So I thought.

Late last week my bank accounts were hacked and drained. That included my trading funds. Gone just like that. Total bummer in itself but it’s a separate issue and one hopefully I will get resolved with my bank.

But it now has me questioning, is it really that bad to leave your funds with your broker?

Is the risk of another black swan event or my broker going into receivership any greater than hackers draining one’s bank account. Also by using leverage to protect one’s funds, one can also deny oneself to better brokerage options. My trading funds had just grown sufficient that I could have opened an account with someone like Interactive Brokers if, I had deposited the full amount with them. But because I was using the above contingency plan I had stayed with my broker because well I have no reason to leave.

Keen to hear views about capital preservation and pro’s n con’s of different methods.

My Experience with TradeInvest90
#2

With a regulated and serious broker that uses segregated accounts, the funds you deposit with the broker actually are in a bank account, and guaranteed up to a certain level (£50k in the UK)

#3

Brokers, particularly the ones probably most of us have access to because of our limited funds might market themselves as having segregated accounts, reality is they don’t. You have to read their fine print in their PDS, most will read like this;

The money which you pay into the client moneys trust account is not kept there but is withdrawn to pay IC Markets before the CFDs are issued to you, even if you pay more than the minimum Margin required. Your client moneys cannot be retained in the client moneys trust account because you need to pay IC Markets before the CFD is issued to you. You can minimise your loss of funds held on trust for you by only paying into the client moneys trust account the amount you are prepared to lose (See section 4.6). Moneys withdrawn from the IC Markets Trust Account are either to pay IC Markets or to pay you. Moneys withdrawn to pay IC Markets are IC Markets’ moneys (and are not held for you). Once your moneys are withdrawn from the IC Markets Trust Account you become an unsecured creditor of IC Markets and you lose all of the protections you had when your client moneys are in the IC Markets Trust Account.

On top of this they will also tell you to minimize your risk by only depositing what you require too trade to meet margin requirements;

You have the risk that IC Markets will not meet its obligations to you under the CFDs. IC Markets’ CFDs are not Exchange traded so you need to consider the credit and related risks you have on IC Markets. As IC Markets is the CFD product issuer, you are exposed to the financial and business risk, including the credit risk associated with trading with IC Markets. If IC Markets becomes insolvent, IC Markets may be unable to meet its obligations to you. IC Markets believes that your counterparty risk on IC Markets is low, especially due to its Hedging Policy, Margin policy and risk management. The potential adverse outcome of this risk is very significant to you since, if it occurs, you could lose all or some of your investment. [B]You can [/B][B]minimise[/B][B] your counterparty risk on IC Markets by limiting the amount you pay IC Markets, trading prudently and requesting payment to you of any surplus in your Account which is not required for prudent Margin management.[/B]

So, as I used to think, by only depositing sufficient funds to meet margin requirements I would minimize the risk I held with my broker thus preserving my capital.

But did I just shift the risk back to my bank? Well yes, cause my accounts got hacked. And this could happen to anyone. So unless you have a valid point in regards to the original question posed

views about capital preservation and pro’s n con’s of different methods.

Take the stupid one line comments you are so used to posting that is of no value to anyone, only make people dumber and blow smoke up someone else’s a|s|s.

#4

Brokers that have a bank licensde under the regulations of the BaFin (in this example germany) have a government security of 100.000.

it all depends where your broker is. in the EU or USA its safe to have medium sized ammounts of 50-100k on broker accounts. depending what broker you have (no not forex at all in this case but real broker) you have no problems in having all your money on a broker account as a real broker (i repeat, not in forex) is a neutral party which doesnt earn/loose on your trades and al trades of all their traders/investors and the money is usually beeing managed by external banks and put on bank accounts of big banks as security and not held with the broker directly.

but in general and that is especially true for forex broker: in a case of bankruptcy first the Tier one debitors get served (banks, insurances, suppliers, employees of the bancrupt company/broker) then the government and then (if anything is left) the investors (in this case traders who deposited money). so: trader comes last.

#5

untill 2008 or so any online banking action that got scammed or a participant in any online banking action who lost money through scam or “hacking” of his computer etc. it truly was that the bank had to reimburse any losses.

after the crisis EU and USA changed this law in favour of banks and to protect banks and put the protection of banks over protection of clients in todays times you have to prove that you can not be held accountable for the fraud.

basicly you have to prove that you did not give your password away or in some childish cases you have to bring your computer to their lawyer so the lawyer sees your anti-virus programm is updated and on the newest state.

if you can not provide these proves usually the bank offers you a share deal where you loose a part they loose a part, if youre very unlucky the bank will not reimburse you at all but just claim that it is your own fault (and that has become the normality nowadays).

so as sh!tty as it sounds but; dont expect too much kindness of your bank. the money is probably gone if you want my opinion from my experience.

#6

Firstly, my sincere condolences for this event. It must have been earth-shattering to find out your bank accounts had been drained! :frowning:

I do not trust keeping any excess funds in a broker account, nor does it really serve any purpose to do so. Mine is split three ways: in two separate broker accounts and, like you, in a separate account in my bank. I was under the impression that banks have a guantantee for such losses up to a certain limit. I will now have to check whether that is in fact the case!!!

Even if you get money back from such a bank guarantee it does not compensate for the stress and severe inconvenience you must be experiencing. I guess it can also take some time before you are reimbursed which must noticeably impact on your trading in the meantime!

But I think I would still trust my bank and its security measures more than my brokers in spite of them both being big and well-regulated.

Having said that, I also keep my other funds in two different banks.

It is difficult to know any more where [I]anything [/I]is safe and secure!

Again, my condolences for a terrible experience and I really hope you can get it sorted and back on track as soon as possible…

#7

banks and governments guarantee a defined sum in case the institute got broke and has to close down.

in fraud or hacking or whatever made another person able to drain a bank account it has absolutely no backup or security. every single case has to be investigated by its own.

#8

First thanks guys for some positive feedback.

How does the old saying go “plan for the worst, hope for the best.” Lucky/unlucky for me I’ve been a victim before (not to fraud but) so I have everything up to date. Also being a red neck from out back of BF nowhere in Wes Stralia means buying 4 1/2 grand of weight loss supplements from Plexus Worldwide out of New York is highly unlikely. Nor the need to buy fit packs from a drug store in New York. And someone in London is going to receive a rather nice bunch of flowers. They way these guys spend your money is undefinable. But my bank has been all over it, even seen some of the funds returned in less than a week. But it’s a process and it takes time.

The truth, the whole truth and nothing but the truth there bro. This event has truly changed how I perceive risk in investment. I’m going to replace risk management in my vocabulary with capital preservation.

#9

Hey there Bob,

sorry to hear about your loss…

In the UK there is the Financial Compensation Scheme,

Financial Compensation Eligibility | Claiming Compensation |FSCS

which covers individuals for losses where their funds

were invested in a registered firm that is in default

(deposit refunds up to £75,000 and investment refunds

up to £50,000 - see Financial Compensation Claims Limit | Deposit Insurance |FSCS ).

Given that you are Down Under and your bank is not in default,

what I am suggesting is of no use whatsoever but I just wanted to

add this bit of information for the readers of this thread, as you mentioned

London.

I hope you get all (or most of) your funds back from the bank and that

your new capital preservation outlook will work better for you in the future.

Take care, Bob.

Sending you positive vibes.