Uk Fsa

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T-Bone Trader

So I received an email from FXCM that contained the following:

Q: If I switch my account to FXCM UK what protection is available?
A: The FSA is the regulatory body that oversees spot FX trading in the United Kingdom. The market has been regulated in the UK much longer then it has been in the U.S. Accounts with FXCM UK are segregated in accordance with FSA client money rules. The financial services authority, one of the world's most respected financial regulatory bodies, regulates FXCM UK.



Since FXCM UK trading account funds are separated from other company funds, does this correlate to "insolvency-protection?"

In other words, if FXCM goes down, my money won't go down with them because my funds were segregated? Or is this not true?
 
No, it just means firm operating money and client funds are in separate accounts, but in the case of a bankruptcy said client funds are still subject to creditors claims like all other firm assets. Its not the same kind of segregation like i.e. US futures accounts.
 
Quote from T-Bone Trader:



In other words, if FXCM goes down, my money won't go down with them because my funds were segregated? Or is this not true?
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It depends on how your funds are held and in what type of account, 'segregated' can mean lots of different things.

Generally, if your funds are held in an account which is segregated from company funds then in the event the company goes bust it's company funds which are used to pay general creditors (ie suppliers), not client funds held in a segregated account. Some creditors have preference, ie the tax and VAT man, liquidators fees etc. As your funds are segregated from company funds they can't be used to pay general creditors, not even preferred creditors. That applies to your available funds, free equity. Money which is being used as margin requirements for open positions is regarded as company funds while it's being used.

If the company goes into bankruptcy and the money held in clients segregated account(s) has a shortfall then you're protected by the FSCS (Financial Services Compensation Scheme) which will pay 100% of funds up to GBP30k and 90% of the next GBP20k (GBP48k on the first 50k).

A lot depends on what type of account your funds are held in, ie are all client funds held in one segregated account or does each client have a separate account, and also the type of investor you're classified as might make a difference as well.

If in doubt then ask the broker for specifics about how your funds are held, then ask the FSA. If you're planning to deposit substantial amounts of money with a broker there may be alternatives such as bank guarantees.
 
Segregation means your funds should be segregated from the companies own funds and can't be used to pay their own creditors.

However they are extremely unlikely to be segregated form other clients funds. So say they only had 2 clients, each with £100k. If one blew up owing say £100k then your funds could be used to pay this debt.
 
Quote from Lon Eagle:

Segregation means your funds should be segregated from the companies own funds and can't be used to pay their own creditors.

However they are extremely unlikely to be segregated form other clients funds. So say they only had 2 clients, each with £100k. If one blew up owing say £100k then your funds could be used to pay this debt.
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In that case it would probably be covered by FSCS up to 48k and then a percentage of anything over 48k, depending on the type of account the funds were held in of course.

It's extremely unlikely a client could owe 100k though, they'd be margin called about 110k before that, and their positions liquidated :)
 
Quote from Pippi436:

No, it just means firm operating money and client funds are in separate accounts, but in the case of a bankruptcy said client funds are still subject to creditors claims like all other firm assets. Its not the same kind of segregation like i.e. US futures accounts.
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This is not completely correct.

Accounts with Forex Capital Markets LTD (FXCM UK) are fully segregated in accordance with UK financial regulations. The Financial Services Authority (FSA) administers these regulations. In the unlikely event of FXCM UK's bankruptcy, clients of FXCM UK would be considered secured creditors and receive priority in bankruptcy proceedings.

Since FXCM UK segregates client deposits and maintains funds in accounts earmarked for the benefit of customers, then in the event of bankruptcy, such funds may not be used to benefit other creditors, but to ensure customers receive back their deposits.

If FXCM is unable to pay all customer claims, retail clients may be able to file a claim with the FSCS to recover their funds.

-Jason
 
Thanks to Jason and LonEagle for awesome explanations!!! :D



And as always, super thanks to cabletrader for his helpful insight


In light of all this information, I think I'm going to move my account to their UK division


Cheers!!
 
Quote from Jason Rogers:



Accounts with Forex Capital Markets LTD (FXCM UK) are fully segregated in accordance with UK financial regulations.

-Jason
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Jason, for retail clients do you know what type of account(s) client funds are held in, and does segregation only apply to free margin?
 
Quote from T-Bone Trader:



In light of all this information, I think I'm going to move my account to their UK division
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I'm staying with a US broker, the price adjustments rule is great for a short-term trader (scalper) like me, bucketshops who fill everything instantly are a real asset :)

Safety of funds is an issue but with the leverage these shops offer there's no need to have large amounts on deposit with them, just enough to cover margin and unrealized losses is sufficient.
 
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