Much less mysterious than you think.
Settlement is t+1. If you sell something today the trade doesn't actually settle until tomorrow. Or if this was a Friday, Monday.
For regulatory purposes, brokers don't like to have customer's cash on their books. So no, they don't keep cash on their books and lend it out to banks.
They are a brokerage, not a bank. Hence sweep functions. The most common option is a money market mutual fund. Here the funds would be segregated. i.e., held in a special account just for clients, not to be comingled with the broker. Next, a bank. If at a bank, it would be set up in a separate account under your name. Is there a risk of a bank run? Sure, same risk as any other FDIC bank account in your name.
Yeah, banks make money off your deposits. I mean, that is how banks work. How else would they pay you interest on your accounts?
Generally speaking, I don't pay much attention. Most people don't like leaving large pots of money in cash, be it at a brokerage or a bank. One should pay more attention to the rate the money is earning than how much a bank or brokerage is earning. This is mostly a boring, low-margin commodity function.
Settlement is t+1. If you sell something today the trade doesn't actually settle until tomorrow. Or if this was a Friday, Monday.
For regulatory purposes, brokers don't like to have customer's cash on their books. So no, they don't keep cash on their books and lend it out to banks.
They are a brokerage, not a bank. Hence sweep functions. The most common option is a money market mutual fund. Here the funds would be segregated. i.e., held in a special account just for clients, not to be comingled with the broker. Next, a bank. If at a bank, it would be set up in a separate account under your name. Is there a risk of a bank run? Sure, same risk as any other FDIC bank account in your name.
Yeah, banks make money off your deposits. I mean, that is how banks work. How else would they pay you interest on your accounts?
Generally speaking, I don't pay much attention. Most people don't like leaving large pots of money in cash, be it at a brokerage or a bank. One should pay more attention to the rate the money is earning than how much a bank or brokerage is earning. This is mostly a boring, low-margin commodity function.
Statistics: Posted by alex_686 — Thu Aug 08, 2024 12:47 pm