April 4, 2013

How to Protect Against a Forex Broker Bankruptcy

How to protect against a forex broker bankruptcy.

When banks treat your money like UniCredit Bank CEO suggests, then you need ways to protect it.

OneStepRemoved has a nice summary of how you would lose your money when your broker or bank goes bankrupt and how you can try protecting against such events. While the discussion is about Forex brokers, the same applies to banks also. 
Deposits at most brokers are unsecured loans to the broker.

I hope you’re aware of this, because it’s the exact same situation with your bank account. The account is “yours” in the sense that it’s “your loan” to the bank. If the bank/forex broker goes belly up, depositors are among the first parties hit with losses (after the deposit insurance ceiling is breached).

That generally means that equity takes the first hit, followed by depositors, followed by the bondholders. If you apply that to a forex brokerage, it means that the owners of the brokerage are first in line to lose the value of their holdings. Once those losses exceed the amount of customer funds on deposit, you the Trader take the loss.

OneStepRemoved’s suggestions to protect your money –

  1. Spread your money across different brokers.
  2. Accounts in Singapore, Chile vs other countries.
    As the financial system is more stable (?) in these countries.
  3. Trading on line of credit

Tags: forex broker bankruptcy, bank bankruptcy, how to protect money in bank bankruptcy, bank cyprus’d