Segregated Accounts

Benefits of a Segregated Account

The forex market is extremely volatile; therefore, it is a risky business. Due to these reasons, having reliability on the forex broker is the primary criterion. So, forex brokers provide all the possible benefits to their traders to become more reliable than others. And, offering the segregated account is one of the top tools to prove reliability.

Although no broker offers 100% protection of your capital as sometimes losses are inevitable. However, a segregated account reduces the loss, but this will give you the safety of your fund while it is sitting idle in your forex account.

So, why do you need a segregated account?

That is what we will discuss and give you a detailed idea about the benefits of a segregated account.

What is a Segregated Account?

What is a Segregated Account A segregated account is just another regular account to keep the client’s fund separate from the company’s operating fund. Therefore, the client’s fund is kept in a separate account, which is dedicated only to the client. This ensures that the company’s fund will never get mixed up with the client’s fund. Besides, it helps the broker to gain trust.

However, segregated funds are widely popular in the forex market, which shows the clients that their funds are not used for the company’s operational purposes. In addition to that, traders can know how their funds are used to pay related trading fees and commissions.

Primary Function of a Segregated Account

A segregated account’s main function is to separate the trader’s fund collectively from the company’s main fund. The segregated fund is used to complete the trader’s individual transaction, and it doesn’t have any relation with the company.

Moreover, the segregated fund provides the security of the client’s fund. This makes the client’s fund identified easily if the brokerage goes bankrupt or loses control, or even transfers its assets.

Benefits of Segregated Account

There have been no segregated account methods in the beginning era of forex trading, which brings out many complications for the traders and sometimes for the brokers. With the popularity of forex trading, complications kept increasing due to combined funding. As a result, regulatory bodies bring out the segregated account policy that saves the traders from any hassles and focuses on trading peacefully.

However, offering segregated accounts are a regulatory requirement nowadays, which definitely brings out the benefits for the traders. Let’s see the benefits:

  • It makes the broker transparent as the funds are separate, and traders have full control over it.
  • Implies a separate bank account, which indicates an extra layer of safety.
  • Traders can initiate a chargeback if they find anything fraudulent.
  • Traders can initiate automatic inbound as well as outbound transfer from the bank.
  • Prevent any confusion about the funds by providing a certain level of safety.
  • Clients can have an excellent level of control over their deposited funds.
  • Funds can be withdrawn anytime.
  • Funds are not exposed to any unavoidable risks.

Usually, all the best forex brokers in the world offer segregated accounts to their clients. As a result, clients can make decisions easily about the funds, and they can control the liquidity risk better.

Drawbacks of Segregated Account

Drawbacks of Segregated Account

After going through all the benefits, you may find it really interesting and safe. At the same time, you may also think of its disadvantages too. However, a segregated account doesn’t have any drawbacks or disadvantages.

Commonly Known Misconceptions about Segregated Account

Separating the client’s fund from a broker’s business account is a positive approach. While mixing up the client’s fund and broker’s fund can misuse the client’s fund. However, some people still believe some myths about the segregated fund, which doesn’t exist. They are:

Misconception one: The broker will provide a personal account to each trader

Most of the traders think that having a segregated account automatically opens up an individual bank account for them. But the truth is, the segregated account is just a single account, which keeps all the trader’s funds in a single account and completely separate from the broker’s personal funds.

Misconception two: Brokers can’t use the segregated funds as margins

Many of the traders think if a fund is segregated, the broker cannot use that for margins, which is not completely true. However, there is a catch; the statement could be true if the broker specifies that in their direction. On the other hand, if it is not specified anywhere, the broker can still use the segregated fund as a margin for them as well as other clients. So, it is advisable to read all the terms and conditions first.

Misconception three: If the broker goes out of business, your fund will be safe

When a fund is segregated, it seems to be safe for everyone. But the segregated account doesn’t guarantee the ultimate safety of the trading funds in the case of a broker’s bankruptcy. So, if a broker faces bankruptcy and has more debt, the client’s money in the segregated funds can be used to pay those debts. However, everything depends on the traders’ rights. The broker should know all the shortcomings before they start investing. This raises the question, is a segregated account safe?

Despite the broker’s ability to use the segregated fund, they are safe. Because, almost all the regulated best forex broker offers client’s fund protection, which definitely secures the client’s trading fund.

Does Segregated Account Help You Out or a Broker’s Tick?

It is almost impossible to answer as different forex trading platforms have different rules regarding the segregated fund. After all the things we have mentioned earlier, the segregated fund can work as a reliability tool for the traders. At the same time, some brokers may keep hidden policies, which could be disadvantages for the traders in some cases. However, if you check out the forex broker reviews and go for the regulated broker, your funds are safe.

Conclusion

As we have mentioned earlier, forex trading is risky, and you have to cope up with the highly volatile market. A segregated account is a must-have feature for any broker. However, regulated brokers should offer a separate funding method for all. Still, there could be some catch if the broker has any hidden policies. So, it would be best to go through all the required policies to know your rights as a trader.

You may also interest on forex mini account, forex micro account, forex demo account, Forex PAMM LAMM MAM account

Best Forex Brokers Comparison

Top Rated Online Best Forex Brokers 2021

FxPro Review
4.8 rating
Trade Like a Pro.
Location: Basinghall, England.
IC Markets Review
5.0 rating
True ECN Forex Broker / Trade from 0.00 pips. Minimum Deposit $200.
Location: NSW, Australia.
XM Review
4.5 rating
Ultra Low Spreads.
Location: Belize, C.A.
HotForex Review
4.3 rating
World Leader in Financial Trading
Location: Beachmont, Kingstown.