When you become a client of DEGIRO UK, you give a standing order to invest money into a Money Market Fund (MMF). This standing order serves as the cash position you will see in your account. You will be able to use the value of this position to finance your investments.
What is an MMF?
An MMF (also known as a 'cash fund' or 'cash equivalent') is a type of mutual fund that is often used as an alternative to bank accounts due to their high liquidity, stability of value, and short-term investment horizons.
Money Market Funds are often used by institutional investors, such as pension funds, to hold large amounts of money in a safe way. Approximately €1 trillion is currently being held in Money Market Funds in Europe. The objective of a Money Market Fund is to realize a return that is equal to the market interest rate with as low risk as possible.
With the strict investment policy, the risk for an MMF is very low. According to the Key Investor Information Document (KIID) of the fund, the risk level is a 1 on a scale from 1 to 7. Just like your other investments, your participations in the MMF are kept strictly separate from the assets of DEGIRO.
Why does DEGIRO use MMFs?
We use MMFs instead of Cash Accounts for clients of our UK platform because our European banking license is no longer valid in the UK post-Brexit. Instead of applying for a new UK banking license, using a cash equivalent such as an MMF is a far more suitable solution.