Is Forex Trading FDIC Insured?
The trading of foreign currencies is sometimes referred to as foreign exchange or forex trading. As with traders of stocks, forex traders will buy and sell foreign currencies for a profit, speculating that the price of a particular currency will go up or down. Because currencies are traded on the global market, the U.S. government has little regulation of currency traders. Forex trading is not insured by the federal government in any way.
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FDIC
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The Federal Deposit Insurance Corporation, or FDIC, is responsible for insuring the deposits of individuals and businesses who have certain types of accounts with banks, such as checking and savings accounts. These banks are required to purchase insurance from the FDIC. Each person with a checking or savings account in the United States is granted an insurance policy that covers up to $250,000 in case of theft or loss of the money through the bank's actions.
Forex Trading
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Forex traders attempt to make money through the trading of foreign currencies. These traders make money through speculation, much of which is high risk. By buying a particular currency and hoping its price will change in a particular direction, forex traders stand to make or lose large amounts of money. Because of the high-risk nature of the business, forex traders generally cannot be insured against their losses by a private or public insurer.
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Coverage
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The FDIC is not designed to provide protection to investors who are making speculative investments. Rather, it is designed to protect people who are saving money in checking and savings accounts, so that they do not have to worry that their money will be lost through bad investments made by the bank. If a bank were to lose account holders' money by engaging in currency speculation, the account holders would have up to $250,000 of their money covered by FDIC.
Considerations
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While a person's forex trading activities will not be covered by the FDIC, the bank account he uses to fund his forex trades probably is covered. However, this account will be covered in the same way as all of the other checking accounts that the FDIC insures. So, the money will be insured against certain kinds of loss or theft, but will not be insured against bad trades or unscrupulous forex brokers.
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