FP Markets Trust Account
Improving the Security of Client Funds
We now face an environment where as a result of the MF Global failure the security of client funds has come into focus.
There have been failures in the past which have been caused by fraudulent or illegal acts, companies lacking proper risk management and proprietary trading.
In resolving these issues clients face further frustration. Administrators and lawyers are all trying to figure out structures, which seem to get more complex. Meanwhile investor funds remain in limbo or worse yet are used to pay the high fees of administrators and lawyers.
Types of CFD Provider
If your provider is not hedging all your positions you should be asking why? How do they benefit from not hedging? Are your interests being aligned? Do they want to get you the best price?
All CFD providers can be bundled into two easily recognisable groups that describe the framework used by each to create CFDs. The core differences between these models relates to the way in which prices are derived and how orders are hedged on the underlying market.
The FP Markets Model
FP Markets chooses to fully hedge their CFDs and conducts no proprietary trading. All CFDs orders issued to our clients are immediately backed by corresponding hedge contracts in the underlying market. This model aligns our interests with our clients. It also significantly reduces FP Markets’ counterparty risk.
To facilitate hedging we engage top tier institutions that are an integral part of financial markets. These hedging positions need to be paid for. In the past this has been facilitated by withdrawing funds from the Client Money Trust Account (s981B Trust Account) to pay FP Markets. A by product of this process is that clients become unsecured creditors for the net amount owing (if any) by FP Markets to them. This was done to comply with current law. The shortcomings of current regulatory requirements have recently been highlighted. There is no protection or claim to the funds once they leave the trust and the restrictions on the uses of the funds are not specific enough.