Online Trading Broker

Is it possible to lose all of your stock when an online broker goes bankrupt in spite of SIPC?

I am told they only have to give you shares, not trading opportunity. If, by the time they settle with you, your shares are worth a penny each in a volatile trade, that is what you get, even if you planned on getting out at $100! So what good is the SIPC?

Public Comments

1. Online brokers don't go bankrupt. They make millions of dollars each quarter and they have more money everyday. Some brokers are among the largest companies in the World. Most trades take a nanosecond. If you want to sell at $100.00 then you will sell at $99.90 or $99.00 but your stock won't go all the way down to $0.01 in a few hours. It takes years to drop that much. Any wise investor would sell when the stock is down 50% The SIPC was created in 1970 and back then we did not have Supercomputers doing all our trades for us over the Internet. In the extreme case your broker went broke (This is highly unlikely in this day and age) the SIPC will pay you all your money with the fees collected in the last 40 years. You will be fine. If you are worried about this then open a brokerage account at a Public Company (Like TD Ameritrade, E*Trade, Charles Schwab and others) and check their profits each quarter. If their profits are going smaller and smaller then close your brokerage account and move your money to a bigger broker.
2. If you happen to be day-trading and your broker goes bankrupt and shuts down in the middle of a trade then you're pretty much out of luck. Typically stocks should be bought and held for the best returns. If a broker that is holding your stocks goes bankrupt, then you are covered up to $500,000 in cash and securities (of which no more than $100,000 can be cash). SIPC is designed to make you whole if an insolvent broker files for bankruptcy - it is not designed to protect the gains of a day trader. P.S. Mr. Castle: a wise investor would buy more when a stock is down 50%...
3. Unless the broker was fiddling around with your account, the stocks are not his assets. If he goes kaput, your assets are still yours and not his, though it may take some time to do the paperwork to transfer control of it. Bottom line - if he goes under, you will have problems short term in accessing your assets, and it could very well cost you, but long term you'll get them.