Futures Account Protection

Quote from jimrockford:

Here is one more thing you should deserving careful thought. If a futures trading firm is offering very low margin requirements, like $500 for e-minis, then WATCH OUT. This means they have deficient risk control, like Refco, and so they are much more likely to go bankrupt during a black swan market event.
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I had a Refco futures account. The margin requirements were much higher than 500$ for intraday trading. Apparently not a guarantee.
So your conclusion is wrong.
The risk control has to do with the risk control, not with the margin requirements. Proof is the fact that Refco is out of business and many 500$ brokers aren't.

500$ per contract means 10 points of loss. It shouldn't be that difficult to close trades when they reach the 10 points loss.


BTW the loss at Refco came from the people managing the company, not from client's losses.
 
Quote from JayS:

Alaron has been around for 16+ years and owns the building they HQ in downtown Chicago. Hardly fly by night. You need to do more research before you spout off.
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Exactly. Don't slander reputable firms casually not only is it ethically wrong it is potentially libel.
 
Quote from def:

Your statement that RCG boasts the strongest financial position of any independent FCM is incorrect. The latest posting of FCM data shows Interactive Brokers LLC net capital as over $163 million in firm capital and $150+ million in excess of regulatory capital.
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def,

Does a sweep into treasuries segregate your "at risk" capital from your treasury notes in the unlikely event that an "event" should occur.
D. Thanks
 
Quote from volente_00:

Excellent advice


Also when choosing a clearing firm, stick with one that has been around for a long time and that is adequately capitalized.



Ib has been around 28 years.

Refco has been around 36 years.




RCG was founded in 1922.

How many others have been around 80+ years ?
How many made it through the great depression ?




Just do your homework before picking one to clear your trades.
As far as refco the writing was on the wall and goes way back.


Refco has not enjoyed a clean reputation with regulators. The Commodity Futures Trading Commission and the National Futures Association took action against Refco and its units more than 100 times since the firm's founding. According to the Wall Street Journal, it was "among the most cited brokers in the business, according to data provided by the NFA."

The 1978 "cattle futures" trading scandal in which Hillary Clinton was allowed to trade large positions on inadequate capital, and possibly the allocation of profitable trading by others into her account, was played out in Refco accounts.

In 2001, the NFA ordered Refco to pay $43 million to 13 investors after their Refco broker used bogus order tickets to clear trades.

On May 16, 2005, the company disclosed that it had received a "Wells Notice," indicating it might face charges related to improper short selling at its Refco Securities unit and other matters. The company had been implicated in "naked" short sales on the stock of a company called Sedona Corp., disclosed that it was negotiating the SEC and hoped to reach a settlement that would likely include an injunction against future violations and "payment of a substantial civil penalty." Refco put $5 million in reserve in anticipation of the settlement. The company has also been sued by Sedona in connection with this trading.
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Quote from def:

Your statement that RCG boasts the strongest financial position of any independent FCM is incorrect. The latest posting of FCM data shows Interactive Brokers LLC net capital as over $163 million in firm capital and $150+ million in excess of regulatory capital.
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My statement is based on facts from RCG.
Can you show me this latest posting that shows how the fcm's rank ?'
 
Quote from jimrockford:

Here is one more thing you should deserving careful thought. If a futures trading firm is offering very low margin requirements, like $500 for e-minis, then WATCH OUT. This means they have weak risk control, like Refco, and so they are much more likely to go bankrupt during a black swan market event.
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So what about if they are offering $300 margins ? Usually those offering low day trading margins have very stringent risk control in place, but the possibility is always there.
 
A firm I was thinking about opening an account with seems to have a low capital reserve. I checked the CFTC website and found this:

http://www.cftc.gov/files/tm/fcm/tmfcmdata0511.pdf

I looked for York Business Associates and the numbers in their row seem very low compared to other brokers. Is this a sign that I should stay away from this broker?

The futures firm is called TransAct Futures but it is actually a child company of YORK BUSINESS ASSOCIATES.

I liked Transact Because they offered the lowest rates per R/T I could find anywhere.

Any Advice?

Thanks
 
The capital of a futures firm is the cushion that determines whether or not you will lose money in the event of embezzlement or uncovered trading losses by other customers. The larger the capital, the greater the chance that any catastrophe can be absorbed by the capital, without loss to customers. The smaller the capital, the greater the chance of a large uncovered loss wiping out the capital, and then requiring invasion of customer assets to cover the loss.

A low capital reserve is absolutely a good reason to avoid a broker.

I already explained, in this thread, why Interactive Brokers is a very safe futures broker. An even greater way to achieve safety at IB is to purchase T-bills and hold them in your SIPC- and Lloyds-insured securities account at IB. If you want to trade futures, IB will give you a margin loan, for up to 97% of the value of your T-bills, and IB will transfer that margin loan to your IB commodities account, where it can be used to meet futures margin requirements. If IB goes bankrupt, your T-bills would be insured by SIPC and Lloyds. If you lost any money in the futures account, due to IB's bankruptcy, this would be a wash, because this would be money you owe to IB anyway. So you would come out of any bankruptcy with full protection from SIPC and Lloyds, just like you were trading securities, even though you were actually trading commodities.

This provides an unbeatable level of safety. I am not aware of any other retail broker who provides you, via T-bills, with futures trading with the full deposit insurance normally only available to securities trading accounts.

If you do not hold your futures positions overnite, then at the end of each trading day, all futures account monies are swept back into your securities account, to pay down the margin loan, so that you will not have to pay any interest on the margin loan.

This is the safest way to trade futures.
 
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