2

I recently opened an account with Fidelity to invest in stocks, ETF, mutual funds. Initially, they offer investment options but basically that means they put my deposit in a Money Market Fund (called core position).

I searched the internet and found that Vanguard does pretty much the same thing. Fidelity's FAQs explains the Fund is where my money sits before investing. However, it doesn't make sense to me. I have an account at Forex.com and my funds stay static.

What are the benefits on their end for putting deposits in their mutual fund?

Improve this question
3
  • 1
    Is it possible that forex.com is just keeping the interest you would have otherwise earned? Doesn’t robinhood use the same model?
    – kponz
    Commented Aug 4, 2019 at 14:05
  • @kponz I've reviewed Forex.com FAQs section. And, this is what it says "All customer deposits are kept separate from our own operating funds and distributed across a global network of custodian banks. Every bank we use holds an investment-grade rating and is monitored as per the guidelines set by the Risk Committee of GAIN‘s Board of Directors." "On Standard Accounts, FOREX.com is compensated via spreads, which are the difference between the bid and ask prices. On Commission Accounts, FOREX.com is compensated via spreads and a $5 commission per 100K. "
    – domino
    Commented Aug 4, 2019 at 19:22
  • @kponz So, I guess ,at forex.com, deposits are kept in separate accounts that work like bank accounts
    – domino
    Commented Aug 4, 2019 at 19:29

2 Answers 2

Reset to default
4

This feature is designed to improve the returns on your idle cash. It goes by different names at different brokerages. At ETRADE they call it a "Sweep account" and they give you the choice between a few funds or cash.

These funds are generally low risk, low return. So, it may be a fund that returns 2% per year.

The idea is to not let your idle cash go to waste. Your cash is available to use, and when it's not being used, it's earning interest.

Improve this answer
7

Why doesn't it make sense? Uninvested money has to go somewhere, right? And you don't always know which stock or bond fund you want it to go to. So... they put your money in a MM account that earns a small amount of interest and is FDIC insured.

Improve this answer
1
  • 1
    Core positions don’t have to be FDIC insured, but the default core position choice usually is
    – kponz
    Commented Aug 4, 2019 at 18:43

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .