IB and Liability Insurance

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paulb

I'm a fairly new IB customer, and since IB doesn't seem to have any money market funds or excess liability insurance, I have had some concerns about the amount of money I might be willing to keep in an account.

I was wondering if anyone else had similar concerns and how they resolved them.
 
This has crossed my mind more than once too. I was thinking maybe a specialty insurance company might write a custom policy to provide protection against default by the broker. It is unlikely to be ever happen, but I would be prepared to pay say 1% of my a/c value per annum for piece of mind.
 
IB is SIPC insured, which means that your account is protected up to $500,000 if the broker should fold or have any other problems with your money. I don't think you have anything to worry about (unless you were trading an account over $500K ;) ).
 
I dunno....I've heard some horror stories about SIPC not paying out (sorry can't remember link offhand but I'll look for it) my point is that it isnt rock solid.
 
For what it is worth....
From time to time I hear that IB may be getting additional insurance coverage. I'm not sure if/when it will happen.

However, you'll note that IB will not let you trade unless there is enough cash in the account to cover the initial margin. If a position falls below minimum margin requirements, IB does not send out a notice asking for more cash. It will automatically liquidate a portion of the position to bring it back into compliance. With such a system in place, it is extremely unlikely for rogue traders to blow out the firm.

As far as reputation goes, The IB group are members of over 40 exchanges/Ecn's around the world. The firm has been around for a while and has a solid reputation. This doesn't answer the insurance question but it may give you more comfort. For history on the company take a look at: http://www.interactivebrokers.com/html/companyInfo/history.html
 
Thanks for bringing up this important issue for discussion, jperl. I did not realize how weak SIPC seems to be. There is really no other topic that should recieve more attention than this one.

Currently, I think that this country's financial system is very fragile and I am suspect of a policy of simply lowering short term interest rates is a cure all for a bear market or weak economic performance.

I am currently living a conservative, debt less, credit cardless life style in order to make the $25,000 minimum for daytraders later this year. I think I can make it, being just about $2000 shy right now.

But, I am not sure if I can send most of my life savings to a relatively (please, no one take offense of these coice of words) unknown securities broker.
 
Trader01,

If you are so conservative, are you sure you want to put your entire life savings into day trading?

Assuming you are conservative because you want to save the capital to trade then I can't argue. In any event, I asked you to look at the company history on the IB web site to point out how the IB Group has been around for over 20 years and provide somewhat of a comfort level. Financials for the brokerage entity are there as well.

However jperls comments are not out of line and the most important thing is that you do not lose sleep over your position and/or worry if you'll ever get your money back.

Hopefully IB is building a reputation where the latter is less and less of a consideration. But if you are going to lose sleep wondering about your money, go elsewhere. There are lots of other good brokers out there - you'll just probably have to pay a bit more in commissions.

 
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