Stability of a Broker: What if your broker goes bankrupt? Could you lose equity in your account?
The Securities Investor Protection Corporation is roughly analogous to the FDIC for investments.  There are some important differences like a lack of 100% guarantee you get all of your funds back. The SIPC understands you invested knowing there was some risk, and therefore you take that same risk in getting your money from a failed brokerage.  However there is still a level of commitment and trust that lessen the risk of investing in the wrong place. Also, do not typo the acronym at your work computer.  In the US (and perhaps elsewhere) it is a racist term, and you are likely to get some bad search results. http://www.sipc.org/how/brochure.cfm "Look at the link to the SIPC. I don't know exactly what you mean by ""runs out of funds,"" but the SIPC will replace shares of stock stolen from your account, and up to $100,000 in cash.  The real risk is when a shady brokers sells you shares in a stock that becomes worthless, that's when ""buyer beware"" kicks in. No help there." "Careful with the ""stock stolen from your account"" thing.  SIPC protects investors against broker/dealer insolvency.  Don't think they provide protection against theft."
"If you don't use leverage you can't lose more than you invested because you ""play"" with your own money. But even with leverage when you reach a certain limit (maintenance margin) you will receive a margin call from your broker to add more funds to your account. If you don't comply with this (meaning you don't add funds) the broker will liquidate some of the assets (in this case the currency) and it will restore the balance of the account to meet with his/her maintenance margin. At least, this is valid for assets like stocks and derivatives. Hope it helps! Edit: I should mention that" While you are correct that no broker-dealer ever qualifies for FDIC and it could be sufficient for customers to know that general rule, for broker-dealers located at or 'networked' with a bank -- and nowadays many probably most are -- these explicit statements that non-bank investments are not guaranteed by the bank or FDIC and may lose principal (often stated as 'may lose value') are REQUIRED; see http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=9093 . In this example, Client A has to buy shares to return them to Client B for his sale (closing Client A's short position).  Client B then sells the shares.  The end result is there are no shares within the brokerage clientele anymore, so Client A can't borrow them anymore.    The broker is just an intermediary, they wouldn't go out and acquire securities on their own for the benefit of a client wanting to short it, as they would be taking on the risk of the opposite position.  This would be in addition to the risk they already take on when allowing people to short sell -- which is that Client A won't have the money to buy the shares it owes to Client B, in which case the broker has to make Client B whole. Brokerage firms must settle funds promptly, but there's no explicit definition for this in U.S. federal law. See for example, this article on settling trades in three days. Wikipedia also has a good write-up on T+3. It is common practice, however. It takes approximately three days for the funds to be available to me, in my Canadian brokerage account. That said, the software itself prevents me from using funds which are not available, and I'm rather surprised yours does not. You want to be careful not to be labelled a pattern day trader, if that is not your intention. Others can better fill you in on the consequences of this. I believe it will not apply to you unless you are using a margin account. All but certainly, the terms of service that you agreed to with this brokerage will specify the conditions under which they can lock you out of your account, and when they can charge interest. If they are selling your stock at times you have not authorised (via explicit instruction or via a stop-loss order), you should file a complaint with the S.E.C. and with sufficient documentation. You will need to ensure your cancel-stop-loss order actually went through, though, and the stock was sold anyway. It could simply be that it takes a full business day to cancel such an order. Not sure if I follow your question completely. Re: What if some fraud takes place that's too big even for it to fund?   SIPC does not fund anything. What it does is takes over the troubled brokerage firm, books / assets and returns the money faster. Refer to SIPC - What SIPC Covers... What it Does Not and more specifically SIPC - Why We Are Not the FDIC. SIPC is free for ordinary investors. To get the same from elsewhere one has to pay the premium. Edit: The event we are saying is a large brokrage firm, takes all of the Margin Money from Customer Accounts and loses it and also sell off all the stocks actually shown as being held in customer account ... that would be to big. While its not clear as to what exactly will happens, my guess is that the limits per customers will go down as initial payments. Subsequent payments will only be done after recover of funds from the bankrupt firm. What normally happens when a brokrage firm goes down is some of the money from customers account is diverted ... stocks are typically safe and not diverted. Hence the way SIPC works is that it will give the money back to customer faster to individuals. In absence of SIPC individual investors would have had to fight for themselves. Can you advice what I should take care about, or just continue to maximize equity? As others have said, you definitely need to learn about risk management and position sizing, but I also think you should consider: Depending on your perspective of it, I can see reasons for and against this idea. Only with the benefit of hindsight can one say how wise or unwise it is to do so. Earlier in my career, I invested and lost it all. Understand if you do buy when would you be able to sell, do you have to have an account with the underwriter, what fees may there be in having such an account, and would there be restrictions on when you could sell. For every seller, there's a buyer. Buyers may have any reason for wanting to buy (bargain shopping, foolish belief in a crazy business, etc).  The party (brokerage, market maker, individual) owning the stock at the time the company goes out of business is the loser . But in a general panic, not every company is going to go out of business. So the party owning those stocks can expect to recover some, or all, of the value at some point in the future. Brokerages all reserve the right to limit margin trading (required for short selling), and during a panic would likely not allow you to short a stock they feel is a high risk for them. You cannot lose more than what you have in your account (equity). You'll get margin called. No broker will allow you to go negative, at least if they aren't caught off guard like when the Swiss decided to decouple their currency. If you want to understand the basics of forex I suggest you read the following: http://www.babypips.com/school This part explains the basics about leverage and margin. They do a good job so no need in repeating it here: http://www.babypips.com/school/undergraduate/senior-year/the-number-1-cause-of-death-of-forex-traders/leverage-defined.html You you need to keep the following in mind when trading forex: "Lending of shares happens in the background. Those who have lent them out are not aware that they have been lent out, nor when they are returned. The borrowers have to pay any dividends to the lenders and in the end the borrowers get their stock back. If you read the fine print on the account agreement for a margin account, you will see that you have given the brokerage the permission to silently loan your stocks out.  Since the lending has no financial impact on your portfolio, there's no particular reason to know and no particular protection required.  Actually, brokers typically don't bother going through the work of finding an actual stock to borrow.  As long as lots of their customers have stocks to lend and not that many people have sold short, they just assume there is no problem and keep track of how many are long and short without designating which stocks are borrowed from whom. When a stock becomes hard to borrow because of liquidity issues or because many people are shorting it, the brokerage will actually start locating individual shares to borrow, which is a more time-consuming and costly procedure.  Usually this involves the short seller actually talking to the broker on the phone rather than just clicking ""sell.""" You are asking about what happens when an ETF/mutual fund company goes bankrupt. If you were asking about a bank account you would be asking about FDIC coverage.  Investment funds are different, the closest thing to FDIC protection is provided by  Securities Investors Protection Corporation (SIPC) SIPC was created under the Securities Investor Protection Act as a   non-profit membership corporation. SIPC oversees the liquidation of   member broker-dealers that close when the broker-dealer is bankrupt or   in financial trouble, and customer assets are missing. In a   liquidation under the Securities Investor Protection Act, SIPC and the   court-appointed Trustee work to return customers’ securities and cash   as quickly as possible. Within limits, SIPC expedites the return of   missing customer property by protecting each customer up to $500,000   for securities and cash (including a $250,000 limit for cash only). SIPC is an important part of the overall system of investor protection   in the United States. While a number of federal and state securities   agencies and self-regulatory organizations deal with cases of   investment fraud, SIPC's focus is both different and narrow: restoring   customer cash and securities left in the hands of bankrupt or   otherwise financially troubled brokerage firms. SIPC was not chartered by Congress to combat fraud. Although created   under a federal law, SIPC is not an agency or establishment of the   United States Government, and it has no authority to investigate or   regulate its member broker-dealers. It is important to understand that   SIPC is not the securities world equivalent of the Federal Deposit   Insurance Corporation (FDIC), which insures depositors of insured   banks. "If I really understood it, you bet that a quote/currency/stock market/anything will rise or fall within a period of time.    So, what is the relationship with trading ? I see no trading at all since I don't buy or sell quotes. You are not betting as in ""betting on the outcome of an horse race"" where the money of the participants is redistributed to the winners of the bet. You are betting on the price movement of a security. To do that you have to buy/sell the option that will give you the profit or the loss. In your case, you would be buying or selling an option, which is a financial contract. That's trading. Then, since anyone should have the same technic (call when a currency rises and put when it falls)[...] How can you know what will be the future rate of exchange of currencies? It's not because the price went up for the last minutes/hours/days/months/years that it will continue like that. Because of that everyone won't have the same strategy. Also, not everyone is using currencies to speculate, there are firms with real needs that affect the market too, like importers and exporters, they will use financial products to protect themselves from Forex rates, not to make profits from them. [...] how the brokers (websites) can make money ? The broker (or bank) will either: I'm really afraid to bet because I think that they can bankrupt at any time! Are my fears correct ? There is always a probability that a company can go bankrupt. But that's can be very low probability. Brokers are usually not taking risks and are just being intermediaries in financial transactions (but sometime their computer systems have troubles.....), thanks to that, they are not likely to go bankrupt you after you buy your option. Also, they are regulated to insure that they are solid. Last thing, if you fear losing money, don't trade. If you do trade, only play with money you can afford to lose as you are likely to lose some (maybe all) money in the process." If you are using a US broker, you are protected by SIPC up to $500,000. SIPC also oversees the liquidation of the broker itself, either by appointing a trustee, or by directly contacting clients. If they are able to transfer accounts to a healthy broker before bankruptcy, they will do so, but if not, you will need to file a claim with them. "Yes.  I heard back from a couple brokerages that gave detailed responses. Specifically: In a Margin account, there are no SEC trade settlement rules, which means there is no risk of any free ride violations. The SEC has a FAQ page on free-riding, which states that it applies specifically to cash accounts. This led me to dig up the text on Regulation T which gives the ""free-riding"" rule in §220.8(c), which is titled ""90 day freeze"". §220.8 is the section on cash accounts. Nothing in the sections on margin accounts mentions such a settlement restriction. From the Wikipedia page on Free Riding, the margin agreement implicitly covers settlement. ""Buying Power"" doesn't seem to be a Regulation T thing, but it's something that the brokerages that I've seen use to state how much purchasing power a client has. Given the response from the brokerage, above, and my reading of Regulation T and the relevant Wikipedia page, proceeds from the sale of any security in a margin account are available immediately for reinvestment. Settlement is covered implicitly by margin; i.e. it doesn't detract from buying power. Additionally, I have personally been making these types of trades over the last year. In a sub-$25K margin account, proceeds are immediately available. The only thing I still have to look out for is running into the day-trading rules." 2 things may happen. Either your positions are closed by the broker and the loss or profit is credited to your account. Else it is carried over to the next day and you pay interest on the stocks lent to you. What happens will be decided by the agreement signed between you and your broker.