what happens if your brokerage goes bankrupt?

[Rambis]

say your online brokerage company were to go out of business. what would happen to your money ?

[aiki14]

say your online brokerage company were to go out of business. what would happen to your money ?

All the reputable ones are insured, in fact some like Merrill are affiliated with multiple banks so your deposits are insured by the FDIC, up to two or three times the individual limit, and the SIPC, and even with additional insurers such as Lloyds of London.
Your broker must provide you with this information prior to opening an account, but it may be tucked away in the little boxes nobody reads and just clicks on.

Here are the websites of some of the insurers
SIPC (Securities Investor Protection Corp)
http://www.sipc.org/how/brochure.cfm
FDIC (Federal Deposit Insurance Corp)
http://www.fdic.gov/
Lloyds of London
http://www.lloyds.com/

[Rambis]

so the brokerage accounts at banks are FDIC insured like bank accounts?

what about say e-trade or think-or-swim?

[aiki14]

so the brokerage accounts at banks are FDIC insured like bank accounts?

what about say e-trade or think-or-swim?

The accounts are not entirely insured by either, cash and money market funds are insured by the FDIC, securities by the SIPC.
If your broker fails, the FDIC will "make you whole" by replacing cash, or cash equivalents up to a limit. The SIPC will replace the lost securities in kind even if they have increased in value. Neither will replace any lost value of investments due to market forces.

I don't know specifically about Think or swim, as I have never used them, but the above applies for all registered brokers in the US.

[Rambis]

E-trade offers a pretty decent % on cash. similar to what a normal bank would offer for a money market. On their website at the bottom they list SIPC but not FDIC. :dong:

[MoreYummy]

I DO NOT think the insurance paid by broker to government will protect you in every single case when you lose money other than your fault.

There are some restrictions, and there is a limit, if you are have quote some capital, the excess amount is not protected as well.

So I would say you will lose some amount due to some special circumstances.

[aiki14]

I DO NOT think the insurance paid by broker to government will protect you in every single case when you lose money other than your fault.

There are some restrictions, and there is a limit, if you are have quote some capital, the excess amount is not protected as well.

So I would say you will lose some amount due to some special circumstances.

Any security (stocks, bonds, options) are safe, the company is not allowed to use them, and SIPC will make you whole (you'll get them back, but they don't guarantee their value). The FDIC will cover any cash up to 100k. Many brokers have 2 banks so your cash is secure to 200k with them, and in addition the big brokers carry additional insurance (Merrill has LLoyd's) which covers you above the 200k.

[XOM]

Brings the mortgage insurers to mind. Food for thought.

[Minik]

Your stocks and funds are still yours. Chances are that another broker will buy those (your) holdings. In other words if etrade goes belly up then Schwab or TD Ameritrade or someone else will purchase etrades holdings. You still own that stock (or funds) - etrade is simply the holding company.

As for any cash that you might have in that account, it is FDIC insured up to $100,000 just like any other bank. It might take you a while to get that money, but you are insured by the government.

[LongArm]

My understanding is that cash balances in brokerage accounts are covered (up to $100k) by the SIPC, not FDIC. FDIC only covers DEPOSIT accounts at banks. Some brokerages like E*trade have a banking division too, so your trading account there would be covered by SIPC and your banking account (if you opened, say, an E*trade savings account) would be covered by FDIC. Also, to confuse things even more, some banks now offer securities, and those are covered by SIPC, not FDIC. :eek2:

The maximum SIPC coverage for lost securities, BTW, is $500k (don't think that's been mentioned).

[Firstrade]

Yes, the maximum SIPC coverage for lost securities is $500k. However, some brokerage firms such as Firstrade provide unlimited account protection through captive insurers. This means that your account is protected up to the total net equity, with no limit for cash or securities. At Firstrade, the Securities Investor Protection Coroporation (SIPC) provides the first $500,000 of coverage, with a limit of $100,000 for cash holdings. Customer Asset Protection Company, a licensed New York insurer (CAPCO) then provides the remaining "Excess SIPC" coverage on securities and cash balances. There are other captive insurers that provide "Excess SIPC" coverage such as Lloyd's of London and XL Insurance, but CAPCO is the most popular choice in the industry. For more information about CAPCO, you can visit their website at http://www.capco.com/.