Forex and FSA protection, clarification needed

Wolf_Man

Can anyone answer this:

I am considering starting some Forex trading on MT4 with someone like Alpari or FXCM running a micro account.

I have live chatted to reps from both brokers regarding FSA protection, but I am still unclear.

The reps say that the FSA protection is £50k per person per Firm.

So say you open a trading account with a broker with £40k, Firm goes down, are the FSA going to give you your money back?

The second scenario is you open a trading account with a broker with £40k. I suppose they put it into a client account at their bank (say Barclays for example).

You happen to have savings products with Barclays totaling £60k.
Those savings products are under the FSA £85K protection.

Are the FSA going to return £85k out of your £100k or would the claim be via the broker and thus you would get all your money back?

Third scenario is you open trading accounts with two seperate brokers with £50k deposited with each.

The brokers happen to use the same bank, bank goes down, do you get back £100k, or £50k.

Sorry to pick on Barclays, they are just used as an example.

Ta.

droopsnoot

If you email the customer services contacts for either of those companies, will they put it in writing in detail? I had a quick look on one of the sites and although they do talk about "safety of funds" and that clients "may" have the ability to claim on the FSCS, it doesn't really clarify under what circumstances they would be.

tradermike

It depends on the firm.
The key is that your money is classified as "Client MOney" and is held in a segregated account, i.e. held separately to the Company money. This means it cannot use your funds in the course of usual business, such as wages, advertising and hedging.

Non-seg accounts are dodgy and not good unless you are trading direct market access.

The other is, that ensure you are tradign with a firm authorised and regulated by the FSA. This way there is the protection of the financial services compensation scheme to protect funds. It doesn't matter what the company then does (fraud etc), your funds are covered in case of a shortfall by up to £50k. This means, if you have £75k in the account, and the company went into administration, and could only pay out £25k of your funds, you can then go to the FSCS for the remaining £50k.

In truth, if you have £50k or under in the account, your money is safe, regardless of whcih broker you use as long as you have the FSCS cover. All it means is that you have a delay in getting your money back. Most have under £50k in trading accounts so no issue.

BUT, some companies are more likely to go bust than others, so do your due diligence on the broker to ensure they have good cash reserves. Size isn't everything, look at Lehman, Refco, MF Global!!!

I hope this helps.

tradermike

or, could just look at the FSA register having found a shortlist of potential brokers. Probably a lot better than looking at a website which has tracking links all over it.

Also, this list will not include any spread betting brokers. Basically the same thing these days.