Retail Firms Balance sheet (FCM)

[1245]

Quote from Jack_Larkin:

The issue is more about "what's possible" than "what's happened lately" or "what's probable."

No one in the past has ever been able to predict a failure of a FCM or loss of funds to a segregated account, so it is difficult to choose one that is "safe" based on capitalization. What is "Probable" is that the next failure or theft of funds will also be unexpected.

The best way to protect yourself based on the past, is to choice a well run FCM with NO trading desk. This is the best you can do. I can not think of one situation where the loss of one client caused the loss of another client. I can't think of one situation where an FCM being "small", ha caused that too. Your definition of small seem to be under $100M. In the FCM world, I would consider small under $25M, because they can't do FX trading then.

1245

 

[Jack_Larkin]

Quote from 1245:

No one in the past has ever been able to predict a failure of a FCM or loss of funds to a segregated account, so it is difficult to choose one that is "safe" based on capitalization. What is "Probable" is that the next failure or theft of funds will also be unexpected.

The best way to protect yourself based on the past, is to choice a well run FCM with NO trading desk. This is the best you can do. I can not think of one situation where the loss of one client caused the loss of another client. I can't think of one situation where an FCM being "small", ha caused that too. Your definition of small seem to be under $100M. In the FCM world, I would consider small under $25M, because they can't do FX trading then.

1245

You had me in agreement up to that last line: """Your definition of small seem to be under $100M. In the FCM world, I would consider small under $25M, because they can't do FX trading then."""

I never indicated anything to suggest such a thing. My comment from before stands on its own. It's a bit of a pet peeve of mine when people put words in my mouth or change my meaning to suit their rebuttal.

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In any case, up until that last line, we were basically saying the same thing but you extended the concept to cover their balance sheet and include criminal intent.

In my mind, I just don't want a shock in the market to take a broker out on the basis that the majority of their traders were int he same direction before the shock hit (not a single rogue trader, but masses all lining up in front of a freight train at the same time.. think, SNB announcement on currency peg to the EUR causing 95%+ of retailers to sit long collecting interest thinking there's a hard floor.. only for that floor to be removed and insta 800+ pip move happens within a few split seconds...)

Of course, that's not probable, but it's possible..

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I agree though, what's more likely is insiders stealing or rogue trading.

 

[TickSlicer]

Hi emg, I noticed that DDT has a $5K account minimum like most major brokerages : http://www.deepdiscounttrading.com/TradingAccount.html

But what is your personal opinion about the bunch of discount brokerages out there that promote an account minimum of less than $5K or No account minimum at all ?

 

[FrankSlaughtery]

Quote from TickSlicer:

Hi emg, I noticed that DDT has a $5K account minimum like most major brokerages : http://www.deepdiscounttrading.com/TradingAccount.html

But what is your personal opinion about the bunch of discount brokerages out there that promote an account minimum of less than $5K or No account minimum at all ?

IMHO, the minimum for an account is irrelevant. what matters is their margin requirement (the day trading - not overnight). for example, company A has a minimum of 1000 USD and gives you 500 margin while company b has a minimum of 10000 and only gives you a 50% daytrade margin.

one of these days there will be a black swan event DURING regular market hours (unlike 9/11 where most daytraders using 500 USD margin normally trade) and there will be a huge gap down that blows past "emergency" stops. that broker is going to be in a world of hurt.

maybe it doesn't happen for a week, a year or five years but this is the reason I emphasize the point of only using an FCM w/ strong financials such as IB or Advantage. it is useless if you're the only trader that properly manages risk (e.g. not trading 10 cars intraday on 5000 USD) if everyone else is doing this and they all blow up and take down the entire firm.

we all saw how one trader can do this (corzine at mf global) - can you imagine what it'll be like if it's most of the customers?