How do you manage trading more than £50,000?

[Purple Brain]

I'm a little way off needing to worry about this, but if I ever do get to that level, how do I structure my trading capital to ensure I get all (or most of it) back in the event of a failure in one or more of the companies with which I have lodged funds?

I understand, depending on who you speak to, as an individual I am covered to either £50K or £85K under current UK legislation. Those who trade more than £50K/85K, do they spread their capital over a number of brokerages or what? Insurance?

And how do financial institutions who trade through a 3rd party protect themselves from such things as I understand they have even less protection. Not that £50K is much of a bonus if a firm has just taken your multi-million pound capital down the tubes with them, but surely they don't leave things to chance?

 

[pboyles]

I'm a little way off needing to worry about this, but if I ever do get to that level, how do I structure my trading capital to ensure I get all (or most of it) back in the event of a failure in one or more of the companies with which I have lodged funds?

I understand, depending on who you speak to, as an individual I am covered to either £50K or £85K under current UK legislation. Those who trade more than £50K/85K, do they spread their capital over a number of brokerages or what? Insurance?

And how do financial institutions who trade through a 3rd party protect themselves from such things as I understand they have even less protection. Not that £50K is much of a bonus if a firm has just taken your multi-million pound capital down the tubes with them, but surely they don't leave things to chance?

Check with forexmospherian, he'd know, what with his 50% a month profits.

 

[random12345]

I'm a little way off needing to worry about this, but if I ever do get to that level, how do I structure my trading capital to ensure I get all (or most of it) back in the event of a failure in one or more of the companies with which I have lodged funds?

I understand, depending on who you speak to, as an individual I am covered to either £50K or £85K under current UK legislation. Those who trade more than £50K/85K, do they spread their capital over a number of brokerages or what? Insurance?

And how do financial institutions who trade through a 3rd party protect themselves from such things as I understand they have even less protection. Not that £50K is much of a bonus if a firm has just taken your multi-million pound capital down the tubes with them, but surely they don't leave things to chance?

Well it depends - you get all of it back if the broker in question has been playing by the segregation rules - your funds cannot be levied by creditors. However, there's the conflict of interest that brokers playing by the rules should inform people that they no longer consider their business to be a going concern on x date and let you withdraw before they close - so a sudden shut-down would typically nearly always be bad.

Most financial institutions use other prime brokers as their counter-parties so the credit risk is usually very low and very public - plus being a prime broker themselves means that their capital is at risk only when matched with an opposing order in the case of OTC, it isn't on margin with a 3rd party - though they do often have to post margin with an exchange who are also normally considered low risk.

Depending on the quality of the investments etc, you can also get 3rd part insurance for some of the value at risk on things like fixed income products. That's more partner level stuff though... never dealt with it myself.

 

[The Artist]

I'm also short of that threshold at the moment but anyway I would consider anything above £20k/£25k to be relevant for this discussion (and then I can legitimately answer ).
I personally adhere to the "margin requirements only" school of thought on that so I just keep whatever I deem necessary to cover my margin requirements every month.
Fund segregation among various brokers can work for some but you can see how it can be logistically more complicated with regard to execution. Besides I like to keep it simple and use the 2 brokers I am most comfortable with (1 active and 1 back-up).
One advantage on top of not having to worry about fund security is that it allows you to make the extra money work for you as well rather that sit idly in the brokerage account.

Now obviously I trade spot FX so I can do that but you did not say what you trade so it may not apply to you if you trade stocks, futures, options and/or any instruments with much lower leverage than standard FX.

 

[Purple Brain]

Just realised it was a stupid question to ask.

Those with more than £50K to play with (a) aren't likely to go public with the fact and (b) aren't going to risk having their methods reviewed too closely.

 

[rsh01]

its not a stupid question

some will trade size as a 50k account but only be happy to have say 25k in that account. the other 25 is in their bank/whereever.

for eg in prop some ppl are trading 100k+ acct in respect to risk but only leave 50k in cos thats the min amt required to take 90/10 (profit share with prop house) split - so in effect they receive leverage. anything <50k = 70/30. but obv they have much closer r'ship with risk dept. and they draw regularly.

so it will vary depending on a lot of things - broker, what inst your trading, your trading history, your risk, leverage etc.

 

[Dinos]

I personally adhere to the "margin requirements only" school of thought on that so I just keep whatever I deem necessary to cover my margin requirements every month.

I totally agree with this train of thought, I personally keep funds to cover approximately 15 consecutive losing trades. No point having surplus funds in there if you don't need them.

 

[random12345]

I generally maintain (4 * combined margin + (3 * 300 day max combined d/d))

 

[NVP]

all good ideas .............I would also suggest a long string attached to the Bol****s of your broker regarding the immediate return of any funds

N

 

[Shadowman540]

Just realised it was a stupid question to ask.

Those with more than £50K to play with (a) aren't likely to go public with the fact and (b) aren't going to risk having their methods reviewed too closely.

No not silly in the least, this has been on my mind for a bit, I thought (hypothetically lets say we have 50k), I use a long time frame so it might not be any use for the fx, rapid fire , boys n girls, but
1 keep the most in a holding account as per above, then load up when your ready to go/ cover max drawdowns.
2 or split it between 2 brokers?, 25k each?.

or just give it to that bloke pboyles likes, mesomeglamaniacamitty, or whatever, with his epic returns and modesty, how could you go wrong!.

 

[Hate2Lose]

I'm a little way off needing to worry about this, but if I ever do get to that level, how do I structure my trading capital to ensure I get all (or most of it) back in the event of a failure in one or more of the companies with which I have lodged funds?

I understand, depending on who you speak to, as an individual I am covered to either £50K or £85K under current UK legislation. Those who trade more than £50K/85K, do they spread their capital over a number of brokerages or what? Insurance?

And how do financial institutions who trade through a 3rd party protect themselves from such things as I understand they have even less protection. Not that £50K is much of a bonus if a firm has just taken your multi-million pound capital down the tubes with them, but surely they don't leave things to chance?

Short answer - you can't. The fscs will only cover you to 50k for investments (or whatever the latest figure is, going from memory here). But they wouldn't cover you if more than one firm went down and you lost, for example, 100k over two firms. You'd only be covered for 50k.

However, I'd say the likelihood of more than one firm going under at the same time is negligible. So, it would appear that spreading it is a good option. I would go for established firms in the uk only.

Raises a question - what happens if two firms went down 6 months apart? Do they only cover you to 50k per year? If not, 50k over what period? Anyone know?

 

[Pondlifedregsbutler]

How do you manage trading more than £50,000?......

BADLY!

 

[DionysusToast]

Just realised it was a stupid question to ask.

Those with more than £50K to play with (a) aren't likely to go public with the fact and (b) aren't going to risk having their methods reviewed too closely.

50k is a drop in the ocean. It's not enough to make a living trading in my opinion.

It's also not enough to worry about revealing your methods.

Now - for someone trading 500 lots on the treasuries, they probably won't reveal their methods.

You have to have some faith in the organisation that has your account, it helps if they do not gamble your money.

I have a 6 figure account with IB, I know guys who have larger accounts with Tradestation (which I wouldn't do personally) . I also have smaller accounts with brokers that are not as well capitalized.

This is where small margins help. With smaller margins, you don't have to keep lots of $$$ in one place. Trouble is for a retailer, smaller margins are offered by smaller brokers in general.

Some better brokers will reduce margins only on a case-by-case basis. Those are the sorts of brokers that pratice due diligence and are less likely to go t!ts up.

 

[random12345]

50k is a drop in the ocean. It's not enough to make a living trading in my opinion.

It's also not enough to worry about revealing your methods.

Now - for someone trading 500 lots on the treasuries, they probably won't reveal their methods.

You have to have some faith in the organisation that has your account, it helps if they do not gamble your money.

I have a 6 figure account with IB, I know guys who have larger accounts with Tradestation (which I wouldn't do personally) . I also have smaller accounts with brokers that are not as well capitalized.

This is where small margins help. With smaller margins, you don't have to keep lots of $$$ in one place. Trouble is for a retailer, smaller margins are offered by smaller brokers in general.

Some better brokers will reduce margins only on a case-by-case basis. Those are the sorts of brokers that pratice due diligence and are less likely to go t!ts up.

I agree DT - 50k is a 'sub terminal velocity' figure in my opinion. Not quite enough to escape earth towards any form compounding or 5 year growth and your annual living expenses alone require a consistently good return on account after tax.

Then again I suppose it depends where you live also. Outside of London it may be doable, but the stress of any endeavour should always be measured vs return in the first instance else you might as well install boilers for better money. It is also possible to use that 50k to build a track record and attract seed, but all of this needs to be very carefully factored like any business plan.

 

[NVP]

ask a pensioner to live on the invested returns from £50k ............wont even cover the heating bills for a year

N

 

[Purple Brain]

Good insights from all, thank you. I was more interested in how one would go about protecting a sum greater than £50K rather than debating whether £50k was adequate or a drop in the ocean or anything of that nature.

DionysusToast - you mention you have a 6 figure account with IB and that "You have to have some faith in the organisation that has your account". Faith is all well and good, but if I had a 6-figure account with a company and I was only ever going to get £50k maximum to compensate me for the loss of all/most of that account - I'd be looking for something a little more protection than that.

I appreciate I'm talking an amount which isn't worth you big boys even thinking about, but as a little tiddler, regardless of the doability of my ever making it to that level, let alone making it beyond into levels you would consider serious, I'm thinking putting it all down to faith is not the way for me to go.

Seriously DionysusToast, are you comfortable with having more than you will ever me compensated for with one company, even though they do currently enjoy a solid financial footing? No insurance or convoluted financial arrnagement to cover you for their possibke failure?

 

[Cornix]

Just keep the absolutely necessary minimum to trade on the account. With current day trading margins across many FCM's not much is needed. The rest/long term with solid companies like IB. Plus generally it's good idea to diversify assets outside of just financial industry.

 

[new_trader]

Short answer - you can't. The fscs will only cover you to 50k for investments (or whatever the latest figure is, going from memory here). But they wouldn't cover you if more than one firm went down and you lost, for example, 100k over two firms. You'd only be covered for 50k.

I don't think this is correct. You are covered £50K per authorised institution . If you lose £1million by having £50K spread across 20 different institutions you will get £50K for each one. Most people think that if they have their money in 2 different banks they are covered for £100K, but this isn't the case if both banks are owned by the same institution.

My broker is in the USA and by law they must keep client money in a segregated account. This protects clients against broker bankruptcy, but(!), if the financial institution that holds the funds goes bankrupt, you are not protected by The Federal Deposit Insurance Corporation (FDIC). You lose everything.

 

[Liquid validity]

I don't think this is correct. You are covered £50K per authorised institution . If you lose £1million by having £50K spread across 20 different institutions you will get £50K for each one. Most people think that if they have their money in 2 different banks they are covered for £100K, but this isn't the case if both banks are owned by the same institution.

My broker is in the USA and by law they must keep client money in a segregated account. This protects clients against broker bankruptcy, but(!), if the financial institution that holds the funds goes bankrupt, you are not protected by The Federal Deposit Insurance Corporation (FDIC). You lose everything.

Correct.
£50,000 per person per firm is the limit.
For example, a joint account - both account holders are covered for 50k each,
100k in total.
Same for separate firms (as in not part of same financial group - Lloyds / Halifax for example are same firm).
http://www.google.co.uk/url?sa=t&rc...KmLuLiLZRxv9Adw&bvm=bv.57752919,d.d2k&cad=rja
http://www.fscs.org.uk/what-we-cover/eligibility-rules/compensation-limits/
http://www.fscs.org.uk/overlay/step-2-know-the-limits-for-you-5jh9gemp/
http://www.fscs.org.uk/overlay/step-3-look-for-overlap-buh9gemq/
http://www.fscs.org.uk/what-we-cove...ding_but_the_FSCS_says_it_cannot_help_me_Why_

 

[DionysusToast]

Good insights from all, thank you. I was more interested in how one would go about protecting a sum greater than £50K rather than debating whether £50k was adequate or a drop in the ocean or anything of that nature.

DionysusToast - you mention you have a 6 figure account with IB and that "You have to have some faith in the organisation that has your account". Faith is all well and good, but if I had a 6-figure account with a company and I was only ever going to get £50k maximum to compensate me for the loss of all/most of that account - I'd be looking for something a little more protection than that.

I appreciate I'm talking an amount which isn't worth you big boys even thinking about, but as a little tiddler, regardless of the doability of my ever making it to that level, let alone making it beyond into levels you would consider serious, I'm thinking putting it all down to faith is not the way for me to go.

Seriously DionysusToast, are you comfortable with having more than you will ever me compensated for with one company, even though they do currently enjoy a solid financial footing? No insurance or convoluted financial arrnagement to cover you for their possibke failure?

One of the best things about IB is the fact you can trade any instruments from a single account.

As such, you can park money in stocks/ETFs and then day trade the margin.

My opinion is that my holdings there are safe whilst any cash balance might be at risk. That's good enough for me.