What Would Happen If Your Stock Brokerage Firm Goes Bust?

Stock brokerage firms allow their customers to trade stocks online without having to go through all the hassles that people used to go through in the past.

Registering to a stock brokerage firm also gives us the opportunity to be able to access and utilize so many tools. Most of those tools can be extremely helpful sometimes, especially if you’re someone who likes technical analysis.

However, although it’s very rare, brokerage firms can also get busted. They can go out of business like any other type of business.

You’re going to learn how could this happen, and if you’re so unfortunate to ever find yourself in such a situation, you’ll also learn what you should do.

To be honest, it’s not something that has a habit of occurring, but you can never be too careful since your capital is at play.

How do stockbrokers hit rock bottom & what will happen to your money?

You may have never thought of that since it’s something that happens very rarely; nonetheless, it does happen and you ought to know about it and how to handle a situation as such.

We wish you’ll never find yourself in this situation, but knowing can’t hurt.

Some brokers have a tendency to participate in irregular behaviors which put them at risk to lose lots of money. For example, Wills & Co. went bust after this brokerage firm was found participating in irregular behaviors by the Financial Services Authority. Although your money isn’t supposed to be in their possession in case they are in need, one can never be too sure about that.

Fortunately, there is a corporation named Securities Investor Protection Corporation (SIPC) which is there to protect your money even if your broker goes bust. This protection covers up to $500,000, and some brokers buy additional coverage to be sure that they are well-covered.

So, if your broker was to go bankrupt you can rest assured that your money won’t be lost given that it is in the range covered by the SIPC or your brokerage’s coverage.

How will your money be handled in the event where your broker goes bust?

SIPC is not generally the same as FDIC is to bank customers where they are expected to get their money back in the event where something was to go wrong.

On the other hand, SIPC guarantees stock traders to receive their shares back through a different broker if their current one goes bust.

The difference in price per share doesn’t have anything to do with it. Whether the price per share has become more affordable or least expensive, they have nothing to do with that. You will only receive the number of shares you’ve had in your possession.

In other words, you will be given your shares at their current price, their current value, it may not be the same price you bought them at.

Are there any fees for this process?

Generally, many stock brokerages charge a fee in order to have your account transferred to another brokerage. Fortunately, for this case, there are no associated fees.

So, you shouldn’t worry about fees if you ever have to deal with an issue as such. Nonetheless, it would always be better to pay some fees and receive the rest of your shares if that was the case, however.

But, no worries because you won’t be charged a dime for this process.

What should you do to help with this process?

I know you may have been with your brokerage firm for a while and have given them your complete trust. But one thing you should know is that they don’t care about your portfolio.

Yes, I say that. They only care about their pockets and there are no other reasons for them to change their interest.

Be sure that you have a record of your account in place. Save all your account statements because they might come very handy if you ever have to prove the amount you had in your possession.

Although you may respect and trust your broker, always remember that your broker may not know everything that’s going on within the firm.

To conclude

The best path to take to trade stock nowadays is through a stockbroker.

Stockbrokers make it extremely easy for us when it comes to trading. You only have to be qualified in order to open an account, and once you have an account the rest is as simple as a, b, c.

Sorry to say, it’s possible for stockbroker firms to find themselves in troubles to the point where they go bankrupt.

It’s not a good situation to find yourself as an investor, but your money should be safe because there’s an insurance in place for that.

However, always do your due diligent and save your statements as you might need them in the case where you have to deal with this problem.

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