Asset Allocation - Futures Broker Risks

[ESHMUZ23]

The general rule I've talked & read about involves strategies or scenarios where a specific trade does not exceed a maximum % of account value. But what about when your account balance is at risk with your broker??

I'm here to talk about the risks of leaving a large (relatively) amount of money with your broker, specifically futures. As far as I know, they are not FDIC insured like a bank, as they are in fact not a bank at all. From the disclosure agreements I've read, specifically Tradovate, if they go under you may ultimately lose your entire account balance.

Is it safe to assume risk based on allocated capital, say put somewhat safer in a bank account, while maintaining a large enough account balance with your broker to meet minimum margin requirements to trade... as in if you wanted to day trade based on a $100,000.00 balance, but you only needed $20,000.00 to safely sustain margin requirements to comfortably day trade. And if you sustained losses (hopefully not!) to where margin was going to become an issue, you deposit from the bank where you keeps funds available.

tldr: Concerned about keeping too much capital in a futures broker just to meet ideal risk ratios. From what I've read on disclosure agreements, your money is not safe in a broker.

 

[Overnight]

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tldr: Concerned about keeping too much capital in a futures broker just to meet ideal risk ratios. From what I've read on disclosure agreements, your money is not safe in a broker.

This is the best you'll get, from FINRA...

"6.2. Protections for Futures Accounts

If your security futures positions are carried in a futures account, they must be segregated from the brokerage firm’s own funds and cannot be borrowed or otherwise used for the firm’s own purposes.

If the funds are deposited with another entity ( e.g., a bank, clearing broker, or clearing organization), that entity must acknowledge that the funds belong to customers and cannot be used to satisfy the firm’s debts. Moreover, although a brokerage firm may carry funds belonging to different customers in the same bank or clearing account, it may not use the funds of one customer to margin or guarantee the transactions of another customer.

As a result, the brokerage firm must add its own funds to its customers’ segregated funds to cover customer debits and deficits. Brokerage firms must calculate their segregation requirements daily. You may not be able to recover the full amount of any funds in your account if the brokerage firm becomes insolvent and has insufficient funds to cover its obligations to all of its customers.

However, customers with funds in segregation receive priority in bankruptcy proceedings. Furthermore, all customers whose funds are required to be segregated have the same priority in bankruptcy, and there is no ceiling on the amount of funds that must be segregated for or can be recovered by a particular customer."