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Two safety nets for spread betters
If your broker should either go bust or fail to look after your capital, there 's no need to panic, says Tim Bennett. There are systems to protect you.
Help is at hand should a broker either go bust or fail to look after your capital.
Remember that in order to startspread betting you will need to open an account with your broker and deposit 'margin' into it. Further margin calls may then be made depending on how your trades pan out.
But what if a broker were to go bust holding your funds? The good news is the Europe-wide government compensation scheme operated in the UK as the Financial Services Compensation Scheme would cover you for up to £85,000 of losses at an authorised firm. Note these are not losses incurred from poor trades, but losses you incur because your broker goes bust holding your money.
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However, before you'd need the FSCS, there is another safety net - albeit one that comes with a caveat. Authorised brokers seehere for more must segregate money held on behalf of retail clients. That should keep it safe. But many brokers will pool the money they hold on behalf of those clients in one segregated account. So although your capital should be safely fenced off from the broker's in the event of insolvency, it may be lumped in with other spread betters' money. This can slow down any claim to get your money back. If other clients owe money on the pooled account, the broker or even liquidator may not be able to pay your funds back to you quickly.
Next, there's the Financial Ombudsman Service (FOS). If you feel you have been mistreated by a perfectly solvent broker (examples could range from not being given sufficient risk warnings to not having your funds segregated as instructed) you can complain to the FOS. There's a process see herefor more details and the whole thing takes time - sometimes up to a year. But the FOS procedure is still usually easier and quicker than a court hearing, and it has the power to force a broker to put things right and/or pay compensation.
Don't panic unduly there's every chance you'll never need either of these services. But there's no harm in understanding your rights on the off chance that you do!
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Tim graduated with a history degree from Cambridge University in 1989 and, after a year of travelling, joined the financial services firm Ernst and Young in 1990, qualifying as a chartered accountant in 1994.
He then moved into financial markets training, designing and running a variety of courses at graduate level and beyond for a range of organisations including the Securities and Investment Institute and UBS. He joined MoneyWeek in 2007.
