Ask Colin

Is online broker (name withheld) reputable and are trading cash accounts they open for clients at (name withheld) bank safe?

(Name withheld) is a big US discount broker. I have met the CEO and I think they are sound. However all brokers will struggle if the bear market gets worse. (Name withheld) Bank is OK. It is listed. The best clue to any problems is to watch its share price chart.

Just remember that you are covered by the guarantee fund if your broker fails - but only as far as actual transactions are concerned. If you have money on deposit, it is not covered and clients have lost badly in previous broker failures. The way I handle this is to keep only what I have to in the broker account. I keep most of my funds in sound cash management trusts and transfer it electronically to the broker account when I want to buy something.

Strictly, the broker account must be segregated and there is no risk in theory. However, there is always fraud to worry about and when a business gets into trouble, they sometimes do not resist temptation to bend the rules, thinking it will all come right in the end. It usually doesn't. You can never be too careful with your money. Unfortunately, money attracts crooks like blood attracts sharks (same species). Don't ever leave it exposed.

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