A segregated account is a company’s account that is separate from the company’s money. The clients’ funds are held in a separate account so that there is no relationship between their accounts and the company’s bank account. This setup helps guarantee that customers’ funds will never be misappropriated or interfered with.
Such a solution is widely used in the forex industry. With segregated accounts, forex brokers ensure that customers’ funds are not used for operational purposes. Also, one of the main purposes of segregated accounts in forex is to encourage customers to invest because they can see that a forex broker offers such a solution, and they know where their money is.
Are you wondering why online businesses want to use segregated accounts or why they would need them? Here are some of the benefits of segregated accounts that can convince you to choose this solution:
• They help businesses automate inbound and outbound bank transfers.
• They prevent confusion and create a certain level of security, so customers can rest assured that if something goes wrong (e.g., a company declares bankruptcy), their money is safe.
• Customers have more control over their money and can withdraw their funds at any time.
• The business is not exposed to unnecessary risks.
• They improve transparency.
Segregated accounts are offered by reliable forex brokers, so their customers are assured that they have direct access to an investment decision-maker. Consequently, their liquidity risk can be better controlled.
If a given forex trader suddenly generates a large profit from his investment and decides to withdraw a substantial sum of money, the trader can provide the payout in a timely and seamless manner.
Forex trading is considered a high-risk business because of its highly volatile nature. When forex traders increase trust by using segregated accounts, they win more customers. Many forex companies have used trader’s funds to invest, but segregated accounts prevent companies from putting their customers at risk.
Trader’s money is well-protected. The company has control over the funds but can’t use them to cover ongoing expenses or for investments. Plus, the company assures its customers their funds will be returned in the case of bankruptcy. (However, it depends on the regulations under which the broker operates, which are based on the country where the broker is registered.)
Segregated account is an important term in the context of Forex trading in which a broker holds their client funds in segregated (separate) accounts that are different from the broker’s core banking account. Segregated accounts are used to differentiate between the broker’s working capital and its client investments. By holding its customers’ funds in segregated accounts, the broker foregoes its rights to use their clients’ trading capital for any purpose other than to meet the trading or margin requirements. Segregated accounts prevent brokers from indulging in any financial malpractices, which help traders to enjoy complete peace of mind while depositing money with a broker. From a trader’s perspective, it is highly imperative to choose Forex brokers with segregated accounts to ensure that they are protected from broker scams or other issues such as broker insolvency.
Forex trading works on the principles of investing money with a broker that enables a trader to place orders on the market according to the different margin requirements set by the broker. Forex transactions are usually carried out in multiples of standard lots or micro lots, which ultimately depend on the amount of leverage provided by the broker. Market orders are also dependent on the type of broker, as brokers may offer market maker accounts or direct market access accounts according to a trader’s preferences.Eventually, all types of orders are either filled by the broker internally for market maker accounts, while brokers pass on orders to the global liquidity provider for direct market access accounts. Immaterial of the type of broker, brokers should hold a minimum amount of money (also called the margin of trading) in a trader’s account for the trader to be able to open and close positions at the interbank exchange rates. Therefore, the amount of money that a trader deposits into his brokerage account serves as the minimum margin amount required by the broker to facilitate Forex trading. During the initial days of Forex trading, all client funds used to be held in the broker’s account, which helped the broker to facilitate easy transfer of money between the market and its client. However, holding client funds in a company’s account made it susceptible to misuse, which led to a significant number of broker scams and financial irregularities.
