Will my money be safe in my trading account during a market crash?
I am an options trader. Imagine when I am peacefully trading on my trading account with my broker, the market collapses and causes a recession or depression.
Now can I continue to trade during the depression? Is there any possibility I would lose my money I used to trade in the worst case?
Info: I use Interactive brokers and I am from India.
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In the United States, the Securities Investor Protection Corporation protects the first 0,000 you have at a brokerage including up to 0,000 in cash. This means that if the firm holding your securities fails financially, you have some coverage.
That insurance does not prevent your investment itself from losing money. Even traditionally save money market funds can potentially lose value in a situation called Breaking the buck. This means that the Net Asset Value of the fund falls below /share. Alas, during periods of market calamity, even traditionally safe stores of value are subject to increased risk.
A market crash won't affect your cash held with your broker - however if the broker defaults (goes bankrupt), you may lose some or all of that cash.
If you read the customer agreement that you signed when opening the account, it's very likely that there's a clause that stipulates that under certain circumstances, the broker has the right to use your cash and/or your positions without notice. If the broker default you may not be able to recover the assets they've been using.
As an example, look at clause 14 of the Interactive Brokers US customer agreement. This is a fairly standard clause.
Depending on your jurisdiction, you may have a partial or full legal protection against such an event (e.g. the SIPC protection for US-based brokers which would apply to you if your broker is IB LLC, even if you are not a US resident/citizen).
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