MF Global Lesson: Avoid margin trading. Independent Financial Advice
MF Global Cash Clients to get Partial Release of Frozen Money
The WSJ said today MF Global’s Trustee today released 60% of the “cash only” accounts’ assets, keeping $349,000,000 in reserve until the Trustee’s auditor can find the missing $600,000,000. So the MF Global customers who had cash accounts were at least able to get some money but the ones without a cash account did not get their money back. I have written an article that cash accounts are safer than a margin account. The article was referring to securities Brokers and is not literally the same at a Futures Broker. My company does not recommend futures trading due to the extreme leverage and risk, and that has helped people to avoid the risk of a Futures Brokerage bankruptcy. When you have a securities account the SIPC insures it to $500,000.
When you lose money in a bad investment your tax deduction is limited to $3,000 a year plus an offset against any capital gains. But if you loss was due to theft, fraud, etc. then you may use the casualty loss deduction to get almost a full deduction against your total income. For example, if you lost $1,000,000 and have income from other sources of $100,000 then you won’t be getting the full value of the loss deduction. But a tax deduction is not the same as getting a complete refund from the Trustee. And there is no SIPC insurance for Futures markets, unlike securities.
I have written an article “Will 401k’s be hurt by MF Global bankruptcy?” and “MF Global bankruptcy scary implications of Eurozone may cause global crash”.
Investors should seek independent financial advice.