What happened to Worldspreads?
For those who don’t know about the Worldspreads fiasco I will explain what happened. Worldspreads was a prominent financial spread betting company regulated by FSA. Worldspreads had high profile advertising campaigns featured on the financial news channels advertising their services and special promotions including ‘0’ spreads on certain instruments. While certainly not the biggest financial spread betting company Worldspreads was a significant player with the British OTC financial derivatives market. In early 2012 it was discovered that Worldspreads had a large accounting hole the company had cash reserves smaller than the size of clients funds deposited. This led to Worldspreads insolvency effecting many clients and leading to numerous individuals losing large amounts. Clients who had less than £50,000 held with Worldspreads were fully protected by the FSA and eventually where fully compensated. The Worldspreads fiasco is believed to be caused by large scale financial fraud and in the immediate after-mouth their were rumors that other companies might be in the same position as Worldspreads (this wasn’t true).
Should I be worried about another Worldspreads?
In short NO, Worldspreads seems to be have an isolated instance of financial fraud at FSA regulated Financial spread betting firm. The majority of OTC customers recovered all of their deposited funds through the scheme provided by the FSA. The people that experienced the biggest loss were either institutions who do not receive the same consumer protections and individuals with more than £50,000 with Worldspreads. What is more worrying is that such a large scale fraud could be undertaken at such high profile spread betting firm unnoticed for an extended period of time. Though their are plenty of over examples of such financial frauds and errors in the recent past.
What can be learnt from the Worldspreads
Before you put your hard earned money on the line with a derivatives provider you should undertake extensive research in what protections are offered by the regulatory body that supervises that particular company. If the protections aren’t sufficient then simply don’t risk your money. It should also be noted that even though clients with less than £50,000 deposited with Worldspreads were fully protected by the FSA scheme, a payment through such a scheme can take some time and you could be heavily out of pocket while you wait for your money to be returned to you. Yet another reason shouldn’t trade with money that you cannot afford to lose.