Safety of money after broker deposit is dependent on various variables. Brokerages regulated (such as by FINRA in the US or FCA in the UK) are bound by client fund segregation policies. Of the globally compliant platforms, 93% segregate client money into distinct bank accounts (such as jpmorgan Chase and HSBC), while the average coverage ratio of segregated accounts is 98.7% (a mere 54% for non-compliant platforms). For instance, when Lehman Brothers failed in 2008, recovery of customer funds in its compliant segregated accounts was 99.7% (28% recovery of unsegregated accounts only). According to CFTC statistics, in 2023, 47 brokers were fined for violating the fund segregation rules, with the largest single fine being 65 million, for client losses of 230 million.
Technically, the top platform employs AES-256 encryption (with a data leakage probability of 0.03%) and biometric login (with a false identification rate of ≤0.001%). In 2023, a particular broker failed to fix an SQL injection vulnerability (with a repair period of 14 days), resulting in data leakage of 97,000 users and looting of 23 million yuan in funds. But compliant websites generally buy online liability insurance (with an average coverage of 50 million), and the success rate of customer claims is 89% (only 12% for non-compliant sites). For instance, a customer incurred a loss of $120,000 as his API key had leaked, and the site reimbursed him in full under insurance.
The insurance coverage is the key protection. The US SIPC insures up to 500,000 per account (250,000 for the cash part), while the UK FSCS protects £85,000. The statistics of 2023 have shown that SIPC handled, on average, 327 claims a year with a payout percentage of 92%. However, cryptocurrency accounts tend not to be as insured (just 11% of the websites offer private key insurance). For instance, in the FTX bankruptcy case, users with compliant fiat currency accounts had a recovery rate of 76% (with an average recovery of 0.68 US dollars) whereas that for crypto asset accounts was only 0.08 US dollars.
Market risks have to be shielded against. Leveraged trades (e.g., 500:1 on foreign exchange) will expose a principal of 10,000 to a risk of 5 million. The 2020 negative price event of crude oil futures led to one-day loss of 5.5 billion for worldwide investors. Volatility indicators (e.g., the VIX index) went up by more than 3,010 billion yuan in one day, and the time to recover client money took more than six months.
The risk of capital flow exists as well. The normal processing time of withdrawals is 1 to 3 working days, but 5% of complaints involve more than 7 working days’ delay. In 2023, one of the platforms suspended withdrawals due to a liquidity crisis, and clients waited for 42 days. It was subsequently compensated with £43,000 (a limit of £85,000) by FSCS. According to FCA statistics, failure rates for withdrawals on compliant platforms stand at 0.7% (14% on offshore platforms), and 97% of complaints are closed in 30 days (only 23% on non-compliant platforms).
In summary, use a broker with SIPC/FSCS insurance, meeting the capital segregation requirements (see FCA’s CASS audit report, if required), with an average leverage ratio of 4:1 in the US stock exchange, and with technical security approval (ISO 27001). The broker deposit risk can be minimized to minimum (annual probability of loss of 0.3% instead of 19% for non-compliant platforms).