Share trade platform provides free $1 million protection for clients

Think your online broker can't collapse? Many Australians have lost their life savings from their share trading platform going broke.

share trade broking platform free offer represented by the word free lit up on wall

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An online broking platform has offered free, $1 million insurance for its users in case it becomes insolvent.

Multinational platform, eToro, announced Wednesday that all its Australian, Europe and United Kingdom customers would receive the coverage automatically at no cost.

"The insurance will form the third layer of protection for clients after segregated trust accounts and regulatory protections," stated the company.

"In the unlikely event that eToro were [sic] to enter a state of insolvency, the policy would kick in to cover clients for losses above the relevant financial compensation schemes to a value of AU$1 million, and in accordance with the purchased policy."

The insurance will cover both cash held on the platform and open accounts, but exclude cryptocurrency assets.

Everyday Australians have lost millions in the past

You might think an online broking provider going bankrupt is a fanciful prospect. But there are several recent examples in Australia where everyday investors have lost money from their broker collapsing.

Only a couple of months ago, online customers of collapsed broker BBY found out they would only receive 44 cents for each dollar they were owed.

To rub salt in the wound, the liquidator accused former director and tennis legend, Ken Rosewall, of receiving $3.3 million while the company was insolvent.

Last year, online broker Halifax went down, taking $20 million of client money with it.

"The primary cause of the deficiency appears to be the use of client monies to fund operating losses since at least January 2017," said administrator Ferrier Hodgson.

"The management accounts, audited accounts and lodgements with ASIC all appear to present with accounting irregularities."

The lost $20 million represented about 9% of investors' cash.

eToro stated its million-dollar insurance policy would provide "peace of mind" for its 15 million users.

"It signals the fintech's ongoing commitment to providing the best possible user experience and safeguarding client wellbeing."

The coverage is underwritten by Lloyd's of London.

eToro was established in 2007 and is a platform that allows investors to mimic the portfolios of other successful users.

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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