{"concept":{"id":22,"slug":"investor-compensation-fund","term":"Investor compensation fund","shortDefinition":"A mechanism that protects part of a client's money or securities if their broker goes bankrupt -- it does not cover market losses, only the intermediary's own insolvency.","longDefinition":"An investor compensation fund covers, up to a set limit, a client's money or securities if their broker goes bankrupt or is unable to return them -- it's a protection against the intermediary's insolvency, not against an investment's price falling. The exact coverage and protected limit vary by country and by the regulator the broker operates under."},"relations":{"requirement":[],"contrast":[],"related":[{"concept":{"id":21,"slug":"broker","term":"Broker","shortDefinition":"An authorized financial intermediary that transmits your buy or sell orders to the market -- it isn't the counterparty to your trade, nor the market itself.","longDefinition":"A broker is an authorized financial intermediary that transmits its clients' orders to the market. It doesn't buy or sell the asset itself -- its function is to channel the order until the market finds a real counterparty willing to take the opposite side. Because it handles money and securities that belong to its clients, not itself, a broker operates under the supervision of a financial regulator, which requires, among other things, keeping clients' money and securities separate from the broker's own (account segregation) -- a protection that matters if the broker were to run into financial trouble."}}],"calculatedBy":[]},"curricularPosition":[{"id":18,"moduleId":6,"slug":"how-to-choose-a-broker","title":"How to choose a broker?","summary":"You know the real criteria for choosing a broker -- regulation, fund protection, available markets, execution quality -- beyond who charges the lowest commission.","bodyMarkdown":"## Objectives\n\nBy the end of this lesson you know the real criteria for choosing a broker -- regulation, fund protection, available markets, execution quality -- beyond who charges the lowest commission.\n\n## Content\n\nChoosing a broker based only on who charges the lowest commission is a risky oversimplification. You already saw in the previous module that the explicit commission is only part of the real cost of trading -- and it's far from the only relevant criterion for deciding who to trade with.\n\nA first criterion is regulation: is the broker authorized by a recognized financial regulator? Trading with an unsupervised intermediary, even if it offers attractive terms, forgoes the protections regulation requires -- like the account segregation already covered in the previous lesson.\n\nA second criterion, directly tied to the first, is fund protection: if the broker goes bankrupt, is there an investor compensation fund that covers your money or securities, and up to what limit? This fund doesn't protect against your investments' price falling -- that's market risk, something different -- but specifically against the broker's own insolvency.\n\nOther practical criteria matter too: which markets and assets are available through that broker, the quality and real cost of order execution (including the spread already covered in the previous module), and the tools and customer support it offers. None of these criteria replaces the visible commission -- they're all considered together.\n\n## Example\n\nTwo brokers might offer a very similar brokerage commission, but only one is a member of a recognized investor compensation fund in its country. That difference matters more, should the broker run into trouble, than a few cents of difference in the commission on each trade.\n\n## Common mistakes\n\n- Choosing a broker by looking only at the lowest commission, without checking its regulation or the fund protection it offers.\n- Confusing the investor compensation fund with protection against market losses -- it only covers the broker's insolvency, not your investments' price falling.\n\n## Summary\n\nChoosing a broker requires looking beyond the visible commission: regulation, fund protection, available markets, and execution quality are equally or more relevant criteria.\n\n## Self-check\n\nWhy can choosing a broker based only on the lowest commission be a bad decision?\n\nWhat exactly does an investor compensation fund cover, and what does it NOT cover?","bodyHtml":"<h2>Objectives</h2>\n<p>By the end of this lesson you know the real criteria for choosing a broker -- regulation, fund protection, available markets, execution quality -- beyond who charges the lowest commission.</p>\n<h2>Content</h2>\n<p>Choosing a broker based only on who charges the lowest commission is a risky oversimplification. You already saw in the previous module that the explicit commission is only part of the real cost of trading -- and it's far from the only relevant criterion for deciding who to trade with.</p>\n<p>A first criterion is regulation: is the broker authorized by a recognized financial regulator? Trading with an unsupervised intermediary, even if it offers attractive terms, forgoes the protections regulation requires -- like the account segregation already covered in the previous lesson.</p>\n<p>A second criterion, directly tied to the first, is fund protection: if the broker goes bankrupt, is there an investor compensation fund that covers your money or securities, and up to what limit? This fund doesn't protect against your investments' price falling -- that's market risk, something different -- but specifically against the broker's own insolvency.</p>\n<p>Other practical criteria matter too: which markets and assets are available through that broker, the quality and real cost of order execution (including the spread already covered in the previous module), and the tools and customer support it offers. None of these criteria replaces the visible commission -- they're all considered together.</p>\n<h2>Example</h2>\n<p>Two brokers might offer a very similar brokerage commission, but only one is a member of a recognized investor compensation fund in its country. That difference matters more, should the broker run into trouble, than a few cents of difference in the commission on each trade.</p>\n<h2>Common mistakes</h2>\n<ul><li>Choosing a broker by looking only at the lowest commission, without checking its regulation or the fund protection it offers.</li><li>Confusing the investor compensation fund with protection against market losses -- it only covers the broker's insolvency, not your investments' price falling.</li></ul>\n<h2>Summary</h2>\n<p>Choosing a broker requires looking beyond the visible commission: regulation, fund protection, available markets, and execution quality are equally or more relevant criteria.</p>\n<h2>Self-check</h2>\n<p>Why can choosing a broker based only on the lowest commission be a bad decision?</p>\n<p>What exactly does an investor compensation fund cover, and what does it NOT cover?</p>","sortOrder":2,"readingMinutes":5,"difficulty":"Básico","url":"/en/academy/fundamentals/brokers/how-to-choose-a-broker"}],"graphSummary":{"root":{"type":"concept","id":"22","depthFromRoot":0,"entity":{"type":"concept","slug":"fondo-de-garantia-de-inversiones","term":"Fondo de garantía de inversiones","excerpt":"Mecanismo que protege una parte del dinero o los valores de un cliente si su bróker quiebra -- no cubre pérdidas de mercado, solo la insolvencia del propio intermediario."}},"depth":1,"returnedNodes":1,"truncated":false,"hasCycle":false,"nodes":[{"type":"concept","id":"22","depthFromRoot":0,"entity":{"type":"concept","slug":"fondo-de-garantia-de-inversiones","term":"Fondo de garantía de inversiones","excerpt":"Mecanismo que protege una parte del dinero o los valores de un cliente si su bróker quiebra -- no cubre pérdidas de mercado, solo la insolvencia del propio intermediario."}}],"edges":[]},"relatedNews":[],"relatedEntities":[]}