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big cash balances sitting in a brokerage
Eric Kaufman
posted Jan 19, 2015

With the recent sort-of fall of FXCM (January 2015 Swiss currency change), the idea of having a lot of cash in a brokerage account seems risky. I use IB, so I feel comfortable that I'm not using a bucket shop with debatable capitalization but still, it's not insured cash so the risk is there.

For one of my algos I need to have a decent amount of cash in my account throughout the day for trading purposes. I've thought recently about buying some rather boring govt bond before the end of the trading day, and liquidating in the morning.

Just curious if there's some general best practices out there where you need to have a lot of uncommitted cash at a brokerage throughout the day, but doing something to address the risk of broker problems.

2 responses
Erick Gomez
Feb 1, 2015

Depends how much money you have if you have more than $250k. IB is insured by SIPC. In interactive brokers for cash, SIPC insurance is similar to FDIC insurance. Your losses are not covered, but you're covered in case of fraud.

However good point I know that investors use SHY security. If you are a daily trader and want to do an over night maybe SHY could be less risky if you have EUROS it is a bond that doesn't move that much.

Peace, Love & Gains!

Simon Thornington
Feb 2, 2015

I believe one's cash is only insured by SIPC if you have set up your cash sweep options to move all but expected futures margin to your securities account. I am honestly not sure about how the various sweep options affect cash management and SIPC insurance. I should check into that, especially since it's bound to be more complicated as a Canadian!

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