FSA (UK account protection)

[SanMiguel]

If you trade based on compound interest, it is very possible to build your account to a large state.
ie increasing lot / trade sizes as your account grows based on the same percentage risk.
In the UK, the FSA covers you for up to 40k for money held with companies that go bust, banks, etc.
So, if you ever got to the state where you were trading an account larger than 40k, how do you protect your money that sits with the broker?
Presumably, you would have to open multiple accounts with them and/or store your massive finances with many different bank accounts?
UK FSA

 

[dealer911]

Why anybody would trade through any non FSA regulated providor is beyond me.. most traders i know welcome regulation but wish it was a bit more robust (it would help if they hired smarter people!)
a secure level playing field is in all our interests.

 

[Captain Currency]

Presumably, you would have to open multiple accounts with them and/or store your massive finances with many different bank accounts?
UK FSA

Hi SanMiguel,

I would defo only ever trade with a broker who is FSA reg because you have some protection from the financial services compensation scheme.

£50,000 is the max levels of compensation from my understanding. Even if you had £100,000 and you split it into two £50,000 accounts you would still only be covered for the first £50,000 if the accounts where in the same name (same person).

Spliting your funds across a number of FSA reg brokers might be a better plan.

Andy

 

[SanMiguel]

Ok, but principle remains the same. I wasn't planning to go with a non FSA broker, not sure where you all got that from. My question pertains to trade sizes.
If you're planning to trade on compound interest then by the time your account reaches that level, you are restricted to a certain lot size in accordance with your risk and margin.

 

[donaldduke]

If you trade based on compound interest, it is very possible to build your account to a large state.
ie increasing lot / trade sizes as your account grows based on the same percentage risk.
In the UK, the FSA covers you for up to 40k for money held with companies that go bust, banks, etc.
So, if you ever got to the state where you were trading an account larger than 40k, how do you protect your money that sits with the broker?
Presumably, you would have to open multiple accounts with them and/or store your massive finances with many different bank accounts?
UK FSA

You will get 50K back eventually.
So you can reseed your account, you wont be completely out of business.

 

[SanMiguel]

You will get 50K back eventually.
So you can reseed your account, you wont be completely out of business.

?
My point is that trading on compound interest allows you to increase your trade size exponentially as your account grows. However, if you get to the point where you are worried about brokers going bust or banks going bust, you shouldn't have more than 50k in an account and therefore not being able to increase your trade size accordingly.

 

[dealer911]

?
My point is that trading on compound interest allows you to increase your trade size exponentially as your account grows. However, if you get to the point where you are worried about brokers going bust or banks going bust, you shouldn't have more than 50k in an account and therefore not being able to increase your trade size accordingly.

ok so have a few accounts then right ?.. no big deal.. i have 3 accounts. in case 1 of the platforms goes down.. good risk management to have a few accounts and it wouldnt limit your trading size but would just be a bit inconvenient.

 

[SanMiguel]

ok so have a few accounts then right ?.. no big deal.. i have 3 accounts. in case 1 of the platforms goes down.. good risk management to have a few accounts and it wouldnt limit your trading size but would just be a bit inconvenient.

Yes, I guess so - just seems a bit awkward to open a trade in 3 portions, 1 on each account at different brokers, including stops, etc. but I guess they could all be grouped onto 1 screen.
Assuming anyone got good enough to trade bigger than that though, it would be a pain having to trade 5 accounts, etc. etc.

Isn't there a way money can be guaranteed over the 50k mark. What do professional traders do? What about accounts directly linked to bank accounts somewhere like Switzerland, etc.?

 

[donaldduke]

?
My point is that trading on compound interest allows you to increase your trade size exponentially as your account grows. However, if you get to the point where you are worried about brokers going bust or banks going bust, you shouldn't have more than 50k in an account and therefore not being able to increase your trade size accordingly.

If you are this worried, then you need to ensure you are safe in the event of a total collapse, so protect yourself first before thinking about compounding. Buy enough t-bills/gold/real estate before fully compounding your account. You need enough to maintain your standard of living in the event of a total economic collapse.

Then hold your speculative account with the most stable brokers/banks you can find.
Monitor these companies (share price is good leading indicator) and be ready to pull your money if needed.

Worst comes to worst you lose nearly all the money in your spec account but you should be able to restart over when The Matrix is rebooted.

 

[SanMiguel]

If you are this worried, then you need to ensure you are safe in the event of a total collapse, so protect yourself first before thinking about compounding. Buy enough t-bills/gold/real estate before fully compounding your account. You need enough to maintain your standard of living in the event of a total economic collapse.

Then hold your speculative account with the most stable brokers/banks you can find.
Monitor these companies (share price is good leading indicator) and be ready to pull your money if needed.

Worst comes to worst you lose nearly all the money in your spec account but you should be able to restart over when The Matrix is rebooted.

Interesting...
Stable is a matter of opinion, how many stories have we heard of recently where companies or banks have gone bust without any clue as to what was going to happen?!
All it takes is for 1 broker to have a trading collapse and all your money goes as well even though they should offset their net risk. I suppose you could split accounts until you get to the point where you can buy a house and then start again from almost the beginning to compound up your account?

I mean what do the people with massive savings do with their money?
Just planning ahead ...

 

[SanMiguel]

Actually...
government backed banks provide 100% protection don't they?

 

[raysor]

Is this a problem? Brokers have to have a cash liquidity ratio maintained. Their un-margined positions are monitored and there are/should be strict rules in place to make sure these don't exceed a specified percentage of their liquidity. As the particular account is compounded and grows there will be an increase in the cash margin required. Surely?

 

[SanMiguel]

Is this a problem? Brokers have to have a cash liquidity ratio maintained. Their un-margined positions are monitored and there are/should be strict rules in place to make sure these don't exceed a specified percentage of their liquidity. As the particular account is compounded and grows there will be an increase in the cash margin required. Surely?

Banks go bust, so do brokers. I either want my money protected or I'm not holding it with the broker. Luckily that means up to 50k in the UK. It seems best to open a few broker accounts when it gets to that stage but keep the actual money with a givernment bank where it is 100% protected.

 

[raysor]

Banks go bust, so do brokers. I either want my money protected or I'm not holding it with the broker. Luckily that means up to 50k in the UK. It seems best to open a few broker accounts when it gets to that stage but keep the actual money with a givernment bank where it is 100% protected.

A lot of brokers clear through Pershing. I believe these accounts are covered twice (one with the broker and also with Pershing) and I think their guarantee is £100k (making £150k). I am not 100% sure of the figures but it is something like that.

 

[SanMiguel]

A lot of brokers clear through Pershing. I believe these accounts are covered twice (one with the broker and also with Pershing) and I think their guarantee is £100k (making £150k). I am not 100% sure of the figures but it is something like that.

I think FSA is only 1 single coverage because it covers the actual account the money is held irrespective of who it's through. Example, my broker is with Barclays, so the FSA will cover 50k in the event Barclays goes under or the broker goes under. No double coverage.
Interesting though.

 

[raysor]

I think FSA is only 1 single coverage because it covers the actual account the money is held irrespective of who it's through. Example, my broker is with Barclays, so the FSA will cover 50k in the event Barclays goes under or the broker goes under. No double coverage.
Interesting though.

I can assure you that there is double coverage. (well I have always understood it to be so)

ABC and PSL (Pershing) are both covered by the Financial Services Compensation Scheme. Compensation may be available from that scheme if we and PSL cannot meet our obligations to you.........most business is covered for 100% of the first £30k and 90% of the next £20k.

 

[SanMiguel]

I can assure you that there is double coverage. It may be that as we are covered up to £50k and Pershing's cover is £100,000 our clients do have double the normal cover. Whether that's just £100k or £150k I must admit I am not sure.

How can Pershing cover 100k if they go bust?
Anyway, my broker just told me no double coverage for my account. Maybe I should check with an account manager.

 

[raysor]

How can Pershing cover 100k if they go bust?
Anyway, my broker just told me no double coverage for my account. Maybe I should check with an account manager.

Sorry, they are covered by the compensation scheme- I have edited my post.

 

[counter_violent]

I mean what do the people with massive savings do with their money?
Just planning ahead ...

They spread their risk...it's the first rule of investment...eggs and baskets.

I know a chap went headlong into luxury holiday lets in cyprus.
He didnt just sign up for One....no the opportunity was so good and the returns so large he signed up for Three.
Now of course he has the drawdown in triplicate.

 

[Rossini]

I know at least 3 different people who re-mortgaged their house in order to buy off plan in Cyprus or similar places. Or worse, re-mortgaged their house and use all that money to put deposits down on 5 or 6 different off plan houses.

At least 2 of them are still adamant that they where just 'unlucky'. They still cant accept that they borrowed money, leveraged it wildly, and speculated that prices would keep going up. They still don't understand that if you bet the house eventually someone is going to take it.