Are your funds protected with retail fx brokers? | Forex Factory

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Are your funds protected with retail fx brokers?

  • #1
  • First Post: Edited Nov 5, 2015 3:19pm Nov 4, 2015 11:26pm | Edited Nov 5, 2015 3:19pm
Starting this topic as most people on this site are hobby traders and not professionals. Ive been a profrssional trader for 2 years now, and would like to give insight to the retail trader. This is to ensure hobby traders understand the retail fx world. REGARDLESS OF THE BROKER, UNLESS YOU TRADE FOR AN INVESTMENT BANK,HEDGE FUND OR A LARGE MA THEN YOUR FUNDS ARE NOT PROTECTED WHATSOEVER. Retail brokers trade against their clients no retail broker passes trades onto the interbank market. When a broker says your funds are protected by cftc, sec or whatever - the fact is that only that broker is registered, your funds are not protected whatsoever. This is because there is no regulated exchange. Unless you trade actual financial securities then that is different, if you trade stocks then yes you are protected. This includes brokers even like "interactive brokers".
  • #2
  • Nov 4, 2015 11:54pm Nov 4, 2015 11:54pm
Just so you are aware most institutional money management that has any clue diversifies every aspect of their business from counter parties to prime brokerage for best execution, safety of principle, etc.

There are countless examples of bad things happening to investors and traders in fully regulated markets as well. You don't have to look far...

Zero Hedge:
There Are Now 293 Ounces Of Paper Gold For Every Ounce Of Physical As Comex Registered Gold Hits New Low
Submitted by Tyler Durden on 11/04/2015 19:42 -0500
  • #3
  • Nov 5, 2015 12:52am Nov 5, 2015 12:52am
Quoting R19
Just so you are aware most institutional money management that has any clue diversifies every aspect of their business from counter parties to prime brokerage for best execution, safety of principle, etc. There are countless examples of bad things happening to investors and traders in fully regulated markets as well. You don't have to look far... Zero Hedge: There Are Now 293 Ounces Of Paper Gold For Every Ounce Of Physical As Comex Registered Gold Hits New Low Submitted by <a href="http://www.zerohedge.com/users/tyler-durden" target="_blank">Tyler...
my point was to make retail traders aware that they are not protected. Most (if not all) fx retail traders have zero education on what they're doing and don't have the understanding of how retail brokers work. Retail traders are betting against their brokers, no retail broker uses a true ecn (unless you're trading around 50 or more lots). The majority think they can make money because they saw an ad on the Internet - they then see that their funds are protected by some agency... nope they're not. As a professional trader myself, I didn't even start trading with firm cap until 2 years after I stated. And in the professional world, we only trade fx (via interbank markets) to hedge against other securities, I've never even heard of someone strictly trading fx vol, until I looked into the retail world lol
  • #4
  • Edited 2:42am Nov 5, 2015 2:30am | Edited 2:42am
Quoting mattholli
{quote} I've never even heard of someone strictly trading fx vol, until I looked into the retail world lol
ok - so you aren't really trading FX other than to hedge? Congratulations! And Goldman Sachs, Morgan Stanley, JP Morgan, etc. never trade against their clients? Keep believing.

You should ask yourself what percent of the time top brokers are quoting right in line with institutional platforms other than the spread (fee's) and you believe that FX brokers are the ones moving the market?

Inserted Video
  • #5
  • Nov 5, 2015 2:34am Nov 5, 2015 2:34am
Quoting mattholli
REGARDLESS OF THE BROKER, UNLESS YOU TRADE FOR AN INVESTMENT BANK,HEDGE FUND OR A LARGE MA THEN YOUR FUNDS ARE NOT PROTECTED WHATSOEVER.
Funds may not be 100% protected, but the level of protection increases as you choose to trade with a UK regulated broker for instance, rather than with a offshore.



Quoting mattholli
Retail brokers trade against their clients no retail broker passes trades onto the interbank market.


why the interbank shouldn't take advantage of retail traders ? ask yourself. because 99% of traders are going to lose, so they are very happy be their LP's. while brokers can earn lots of money on commissions too and without taking ANY risk....
  • #6
  • Nov 5, 2015 2:49am Nov 5, 2015 2:49am
Quoting mattholli
Starting this topic as most people on this site are hobby traders and not professionals. This is to ensure hobby traders understand the retail fx world. REGARDLESS OF THE BROKER, UNLESS YOU TRADE FOR AN INVESTMENT BANK,HEDGE FUND OR A LARGE MA THEN YOUR FUNDS ARE NOT PROTECTED WHATSOEVER. Retail brokers trade against their clients no retail broker passes trades onto the interbank market. When a broker says your funds are protected by cftc, sec or whatever - the fact is that only that broker is registered, your funds are not protected whatsoever....
I rather think this is sort if misleading, I know that once a broker is regulated then my funds are protected. Though, I don't expect my money to be 100% protected, there is no such business where money protection is protected, Even the thieves themselves their money is not safe!
  • #7
  • Nov 5, 2015 2:57am Nov 5, 2015 2:57am
I can say from my institutional trading experience that counter party and prime broker risk (our brokerage accounts and dealings) were a primary concern and we did business with the biggest names on the street.
  • #8
  • Nov 5, 2015 3:17am Nov 5, 2015 3:17am
Quoting francmorio
{quote} I rather think this is sort if misleading, I know that once a broker is regulated then my funds are protected. Though, I don't expect my money to be 100% protected, there is no such business where money protection is protected, Even the thieves themselves their money is not safe!
Yes the brokers are protected, not you LOL.
  • #9
  • Nov 5, 2015 3:23am Nov 5, 2015 3:23am
Quoting HeyYou
{quote} Funds may not be 100% protected, but the level of protection increases as you choose to trade with a UK regulated broker for instance, rather than with a offshore. {quote} why the interbank shouldn't take advantage of retail traders ? ask yourself. because 99% of traders are going to lose, so they are very happy be their LP's. while brokers can earn lots of money on commissions too and without taking ANY risk....
Yes, obviously the us and uk have better regulations, but retail traders seem to believe that there funds are somewhat protected, they are 0% protected. I am not saying don't trade as a retail trader, I plan to be a retail trader myself one day when I leave the professional world and then I will be in the same boat as you. I'm simply advising traders to be aware...
  • #10
  • Nov 5, 2015 3:26am Nov 5, 2015 3:26am
Quoting mattholli
Starting this topic as most people on this site are hobby traders and not professionals. This is to ensure hobby traders understand the retail fx world. REGARDLESS OF THE BROKER, UNLESS YOU TRADE FOR AN INVESTMENT BANK,HEDGE FUND OR A LARGE MA THEN YOUR FUNDS ARE NOT PROTECTED WHATSOEVER. Retail brokers trade against their clients no retail broker passes trades onto the interbank market. When a broker says your funds are protected by cftc, sec or whatever - the fact is that only that broker is registered, your funds are not protected whatsoever....
this is wrong in many ways:

1) Investment banks, hedges funds etc do not have protection - who would offer it to them? go see how much it costs to insure a few billion...
2) Not all retail brokers trade against their clients, some do, many aggregate and others act purely as an STP
3) Some countries do offer limited financial protection to clients of registered institutions.
4) Most properly regulated brokers ring fence your cash in separate bank accounts to their own.
5) Some retail brokers now offer 100% protection up to certain limits via insurance policies.

The real reality is that people should focus on what is important when choosing a broker...

1) It is not rebates, cashback, deposit bonus etc. these are all indicators of a broker to avoid
2) It is, good platform, good execution, cost of dealing in line with services offered - cheapest is not always best
3) It is, a broker that never has a situation to be against your interests
4) It is, a broker that is properly regulated, in a proper financial district, you won't find these in the Virgin Islands, Nigeria, Belize, Cyprus etc.... These places offer huge offshore tax advantages to the brokers and any broker that wants to fly under the tax radar is in my opinion less likely to be the kind of broker with no interest in your trading outcomes.
  • #11
  • Nov 5, 2015 3:28am Nov 5, 2015 3:28am
Quoting R19
{quote} ok - so you aren't really trading FX other than to hedge? Congratulations! And Goldman Sachs, Morgan Stanley, JP Morgan, etc. never trade against their clients? Keep believing. You should ask yourself what percent of the time top brokers are quoting right in line with institutional platforms other than the spread (fee's) and you believe that FX brokers are the ones moving the market? https://www.youtube.com/watch?v=TxlTHZ0GmxU
Yes thats called market making, and there is nothing wrong with that, just telling people to be aware.. I see a lot of uneducated comments on here... just trying to help people out. 99% of retail traders think they understand how markets/brokers work when they really don't. Also I highly doubt that you are an institutional trader by the sounds of it.

And to answer your question, no - retail brokers don't play in the market they create an artificial market for their clients that is almost an exact replica of the real inter bank market.
  • #12
  • Nov 5, 2015 3:33am Nov 5, 2015 3:33am
Quoting MaxDoom
{quote} this is wrong in many ways: 1) Investment banks, hedges funds etc do not have protection - who would offer it to them? go see how much it costs to insure a few billion... 2) Not all retail brokers trade against their clients, some do, many aggregate and others act purely as an STP 3) Some countries do offer limited financial protection to clients of registered institutions. 4) Most properly regulated brokers ring fence your cash in separate bank accounts to their own. 5) Some retail brokers now offer 100% protection up to certain limits...
unfortunately not, the retail broker always has a conflict of interest, when you are buying they are selling and when you are selling they are buying. The only time this changes is if you are trading around 30-50 lot sizes. When you are told that your broker is an ecn or stp - they are not. Almost all of retail traders will loose money so it naturally makes sense to them to create a simulated market.
  • #13
  • Nov 5, 2015 3:40am Nov 5, 2015 3:40am
Quoting MaxDoom
{quote} this is wrong in many ways: 1) Investment banks, hedges funds etc do not have protection - who would offer it to them? go see how much it costs to insure a few billion... 2) Not all retail brokers trade against their clients, some do, many aggregate and others act purely as an STP 3) Some countries do offer limited financial protection to clients of registered institutions. 4) Most properly regulated brokers ring fence your cash in separate bank accounts to their own. 5) Some retail brokers now offer 100% protection up to certain limits...
and yes funds do have protection for securities, it's the retail fx market that doesn't. It's a different story if a retail trader is trading equities - then yes they would be protected.
  • #14
  • Nov 5, 2015 3:45am Nov 5, 2015 3:45am
Quoting mattholli
{quote} unfortunately not, the retail broker always has a conflict of interest, when you are buying they are selling and when you are selling they are buying. The only time this changes is if you are trading around 30-50 lot sizes. When you are told that your broker is an ecn or stp - they are not. Almost all of retail traders will loose money so it naturally makes sense to them to create a simulated market.
you are right in some cases, but you are wrong in saying that this is all brokers....

I have been trading since before computers were involved I know my way around the brokers and what they offer and what they do.

sounds to me like you have lost a lot of money somewhere...
  • #15
  • Nov 5, 2015 3:53am Nov 5, 2015 3:53am
Quoting mattholli
{quote} and yes funds do have protection for securities, it's the retail fx market that doesn't. It's a different story if a retail trader is trading equities - then yes they would be protected.
you are just confusing the issue now.... everybody has the same protection for equities, if you own a share then there are no funds to protect.....
as for FX the large institutions do not have financial protection on their FX investments nobody does, not retail, not banks, nobody, if you have an open fx position then it is subject to market forces..
as for the cash element of a broker account - I already explained in previous post about the protection
  • #16
  • Nov 5, 2015 3:58am Nov 5, 2015 3:58am
By technical definition The banks are the big market makers, which means LPs can only be as good as the bank, and the broker can only be as good as their LP. If anyone in the chain (cough banks) are market makers then technically everyone has a trickle down form the market making. Market Making people attribute as solely a bad thing (by nature of definition it isn't). The problem is its a huge opportunity for scammers or for market making companies that get in too deep, to run off with your money or turn it into bad investments so you loose. I know people love to compare the market with gambling, so lets do it here. Simply put, not all bookies (market makers) are bad. Just the ones that don't pay up for earnings. Or shooting dice in the street (sometimes its "honest" gambling, and sometimes the dice are loaded (market making) and sometimes the people will just take your money and tell you good bye). Ways Brokers attempt to separate themselves and sometimes are deceptive about being a market maker is because the general populace has no real idea how this works. Giving regulations and security banks, etc. while the broker MAYBE can overstep something its a way of showing they are trying to do business not trying run scams. Unfortunately what some consider business and what they consider scam has a very thin line which is what begins to become visible when you enter the business world and should be something everyone is aware of.
  • #17
  • Edited 6:44am Nov 5, 2015 6:33am | Edited 6:44am
Quoting mattholli
{quote}And to answer your question, no - retail brokers don't play in the market they create an artificial market for their clients that is almost an exact replica of the real inter bank market.
Best comment ever on this entire site! Next we get to hear how FX brokers don't hedge their clients positions and are effectively prop trading against their clients!
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  • #18
  • Nov 5, 2015 6:59am Nov 5, 2015 6:59am
UPDATE: My broker had EURUSD at 1.08805 and it's 1.08807 in the interbank - FAKE MARKETS!
  • #19
  • Nov 5, 2015 2:15pm Nov 5, 2015 2:15pm
Quoting MaxDoom
{quote} 4) It is, a broker that is properly regulated, in a proper financial district, you won't find these in the Virgin Islands, Nigeria, Belize, Cyprus etc.... These places offer huge offshore tax advantages to the brokers and any broker that wants to fly under the tax radar is in my opinion less likely to be the kind of broker with no interest in your trading outcomes.


Very good points, but I think their main goal is to avoid strict regulations not taxes.


Look what happened to many of those "proud" NZ brokers, when FSPR has become more strict... RUN, RUN, RUN !!!
  • #20
  • Nov 5, 2015 3:12pm Nov 5, 2015 3:12pm
Quoting MaxDoom
{quote} you are just confusing the issue now.... everybody has the same protection for equities, if you own a share then there are no funds to protect..... as for FX the large institutions do not have financial protection on their FX investments nobody does, not retail, not banks, nobody, if you have an open fx position then it is subject to market forces.. as for the cash element of a broker account - I already explained in previous post about the protection
I'm simply explaining how it works, and you're wrong.. professionals usually only use fx as hedging. And I don't expect you to be able to understand this, but yes most of what funds trade are protected with assets, it's fairly complex and if you want to understand it then you'll have to take an economics degree, financial engineering, then get hired at a firm. If I were you I would stick to your day job and leave the markets to the professionals. By the way I think I would know, I've been a professional trader for 2 years now
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