Hi, this is probably a stupid question, but what happens if your broker goes bankrupt?
Assume you were rich (I'm not) and you wanted to invest some of your wealth into somthing very save, say, inflation-protected government debt. I know there are mutual funds that specifically invest in this asset class, but lets assume you wanna pick the bonds yourself. What happens if the broker you use to buy these bonds goes bust? I mean, the bonds themselves didnt default, just the broker. and its not like counter party risk right? i mean, if you buy an option and the broker is on the other side of the bet, then yea, you have a problem. but if you buy bonds, they are already bought, the broker is just "storing" them on your account.
thanks for any clarification
You'd think so right? Brokers are supposed to have segregated accounts for their clients. So in the event of default the client's money is separate from the entity and creditors can't hit it. HOWEVER - MF Global did not really respect that last time (a couple years back), and some accounts were not really segregated. Sh.t show ensued - as people lost their supposedly 'safe' money.
also, if your broker is a SIPC member, you're protected. but as @"Disjoint" said, this assumes you reconcile accounts daily. . SIPC coverage is up to $500k, but most BBs will give you unlimited excess coverage, probably through a private insurer. so if shit really hits the fan, your broker goes bust, just hope your broker's insurer is solvent.
ok thank you!
lol been there done that (we were MF Global clients)
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