What happens to open profits if FCA broker goes bankrupt ?

[rjay]

Does anyone know whether FCA protection extends to my open profits in the event of a FCA-registered broker going bankrupt ?

 

[soro]

I never see any case a trader could get their fund back after the broker went bankrupt.

 

[highbury fx]

Does anyone know whether FCA protection extends to my open profits in the event of a FCA-registered broker going bankrupt ?

regulated companies have to run a report at least once a day that shows how much client money needs to be segregated. this report takes in to consideration open positions and the broker is obliged to segregate all running profits as well as client cash. it works the other way as well, if you have £1,000 cash but an open position losing £100 the broker will only need to segregate £900 for you.

unfortunately when firms go bust it takes the administrator a long time to reconcile all the open positions and close them. the running pnl you have at the time the firm declares it is in administration will not be reflected once the administrator closes your position. It could be better it may be worse but the running profit or loss will factor in your final payment.

so yes, you will get paid back any open profits you have once the administrator has closed your position as long as any payout from the FSCS is within their maximum payout.

 

[tradedoctor]

I never see any case a trader could get their fund back after the broker went bankrupt.

Many got their money back when Alpari's UK entity went into administration with the FCA stepping in.

 

[Splitlink]

I posted this in another thread several years ago. It might be useful, I don't know. Hope so.

"Depends which type of broker. I had a broker go bust on me, Mitton, Butler & Priest around 30 years ago, that I used for option trading. I went to another--Sheppards and Chase, opened a new account with them. The options were automatically transferred and, in the course of the conversation I, also, mentioned that I had cash in my account with them. I thought that that was going to be a loss for me but the broker to whom I was talking to, lifted the phone and got that out, too.

So it goes to show that one should not form one's own, sometimes, pessimistic, opinion, but should ask questions of another broker because they have a system of taking over client accounts when one gets into trouble.

 

[michaelbai]

another key is to see if they hold funds in a trust bank or do they mix the funds with the business.

 

[prok]

another key is to see if they hold funds in a trust bank or do they mix the funds with the business.

all brokers claim on website the client funds are always put in a bank that no involve to broker fund. But maybe they lie about it.

 

[gerryg]

I guess your reimbursement amount from regulator is limited to your initial deposit. I trade with Нotforex and Cysec applies this restriction to me..

 

[michaelbai]

all brokers claim on website the client funds are always put in a bank that no involve to broker fund. But maybe they lie about it.

Not ALL brokers claim this and fewer can prove it. Also need to make sure the purpose of this other bank. Is it really to separate the funds, or is it just a way to blend in with the competition?

 

[michaelbai]

I guess your reimbursement amount from regulator is limited to your initial deposit. I trade with Нotforex and Cysec applies this restriction to me..

Not sure about Cysec, as I consider them irrelevant as my understanding is anyone with a bank account and able to pay their fees can get their regulation. No offense and please correct me if I am wrong.

 

[prok]

Not ALL brokers claim this and fewer can prove it. Also need to make sure the purpose of this other bank. Is it really to separate the funds, or is it just a way to blend in with the competition?

Nice catch, is there anyone try to contact with CS of a broker for clarifying this issue?

 

[michaelbai]

Im sure they have some NDA agreements in place but maybe not. Ide be interested to know as well. My broker has a 3rd party bank and it got sure is separated from USGFX but ide like to know how to check others if its possible.

 

[MORRIS2001]

I posted this in another thread several years ago. It might be useful, I don't know. Hope so.

"Depends which type of broker. I had a broker go bust on me, Mitton, Butler & Priest around 30 years ago, that I used for option trading. I went to another--Sheppards and Chase, opened a new account with them. The options were automatically transferred and, in the course of the conversation I, also, mentioned that I had cash in my account with them. I thought that that was going to be a loss for me but the broker to whom I was talking to, lifted the phone and got that out, too.

So it goes to show that one should not form one's own, sometimes, pessimistic, opinion, but should ask questions of another broker because they have a system of taking over client accounts when one gets into trouble.

This would have been due to your positions being physical positions held by 3rd party nominee and your cash being held in a wholly segregated client account at a bank.

This was the old way of trading but almost irrelevant today as outside of physical equity broking most people are trading OTC where there is no physical but an OTC paper contract bespoke between the client and the broker and their funds are held on a pooled basis.

Hope this make sense.

 

[michaelbai]

Another key thing is FCA is now a bought regulation. If you have 2million pounds you can place in a bank account, basically forever. That 2m acts as insurance. Depending on client number, size, and losses, this money is used to reimburse as well.

 

[cloud7]

If a broker put trader funds in separated accounts at Banks, why many brokers still could be bankrupt? Are they really STP NDD broker or Market Maker?

 

[michaelbai]

In a separated account this means the broker is bankrupt but doesn't mean the clients are bankrupt. The problem would come with a bad broker that is using the "trust account" as a marketing gimmick rather than a real trust account, as mentioned before. Dont think it is a matter of Market Maker versus ECN versus STP here. For example at my broker our MT4 and Trust bank account funds must always match up. If not there are huge penalties and possible loss of our regulators. The better question to ask yourself is, is your broker your partner or your enemy?

 

[highbury fx]

Not sure about Cysec, as I consider them irrelevant as my understanding is anyone with a bank account and able to pay their fees can get their regulation. No offense and please correct me if I am wrong.

You're wrong.

Getting CySEC regulated is a process that takes just as much time, money and effort as it does to get a brokerage regulated by the FCA.

How do I know? My brokerage has currently got both licenses and I have been through each application process.

 

[michaelbai]

I am sure that is true. But how often do they conduct audits? How often do you have to report to both agencies? How often do they check your MT4 with your bank accounts? My understanding is only NFA and ASIC run consistent monitoring and audits (announced and unannounced) rather there is a problem/report against the broker or not where as FCA wakes up when things go wrong or there is some suspicion.

 

[highbury fx]

I am sure that is true. But how often do they conduct audits? How often do you have to report to both agencies? How often do they check your MT4 with your bank accounts? My understanding is only NFA and ASIC run consistent monitoring and audits (announced and unannounced) rather there is a problem/report against the broker or not where as FCA wakes up when things go wrong or there is some suspicion.

Your understanding is incorrect. What is it based on? What you hear or what you know? because It sounds like you don't actually know anything about this at all.

Audits are run twice a year. We report daily to both agencies. Client balances are reconciled twice per day.

To get regulated by CySEC or the FCA will take 4 months of specialist lawyers preparing the application before you actually submit the application and another 6 - 9 months before you're approved. You need to have a going concern by the time you are authorised and that means you would have incurred set up costs of £1m to £2m before you even are allowed to go live. Once live you incur immediate costs of £150k to £250k per month. You probably wont start getting much business in for at least a few months (if you manage to get any at all) by that time your set up costs without seeing any return would likely be in the region of £1.5m to £3m.

ASIC don't even segregate client funds and you're more in favour of them than CySEC. That alone is evidence you don't understand what you are talking about.