Why You Need Segregated Accounts

In Forex market a ‘segregated account’ is a special type of account that the Forex brokerage company uses to keep its customer's assets separately from the firms. This separation of client’s funds from the main account of the firm is very important for a number of reasons. The fundamental purpose of this separation is to create a clear distinction between the two assets. This is done so that no money from either group is used for the wrong purpose. For example, consider a case where the brokerage firm uses client’s money to finance its operations. This is very possible in cases where there is no segregation simply because it is not easy to separate the two monies.

Benefits Of Segregated Accounts

The ultimate benefit of using segregated account is clears as stated in the definition- to create a clear cut separation between the client and the broker’s money. First of all, this clears separation is helpful for limiting chances of incorrect us of funds. This is beneficial not to the Forex trader but also to the brokerage firm. Both the two parties enjoy outstanding accountability of their funds.

It is very possible for any Forex broker to become insolvent and bankrupt. There is no exception to this as it can happen to any Forex broker. During insolvency, the broker is barred from using clients’ funds to pay off its creditors or finance its expenses because it is separated recognized as belonging to clients. The clients’ funds are henceforth tied up in litigation during these hard financial times for certain duration.

Segregation of account helps maintain integrity of the Forex market. Every financial market heavily relies on integrity and values it very much. The Forex market, just like any other financial market has scammers and fraudsters who want to make ill-wealth.

Segregation of account also helps maintain the security of the investor’s funds. Traders put themselves to higher risks when dealing with Forex brokers. This including loosing even your entire investment. Segregation of accounts helps ensure the safety of your funds as the broker is blocked from interfering with it.

In case the Forex brokerage firm ceases to operate either due to financial difficulties, the clients funds will remain intact not affected in any case. The money which is held in the segregated account is protected from trade credits that the broker made in the past.

Another advantage is that proper and easy management of clients’ account is better achieved by maintaining segregated account. These include portability and flexibility of assets. Here, it very easy to tailor the clients’ portfolio to limit exposure to some sector of individual company or economy at large.

Additionally, maintaining segregated account greatly help in tax management. An investment scheme has a primary goal of achieving high profitability but the secondary goal is achieving tax efficiency. Using segregated account help the company manage its capital gains and losses very effectively. This help in determining the appropriate tax levels.

Regulations Of Segregated Accounts

By law, Forex regulatory bodies require that Forex brokerage companies maintain segregated accounts. The law stipulates that all clients’ funds are deposited in segregated accounts. The segregated accounts are constantly monitored by the Forex regulatory body controlling the brokerage firm. The intention is to prevent the clients’ account from any act of criminal or fraudster activity.

Conclusion

Both the Forex brokers and the trader benefit from maintaining segregated account. Clear accountability of funds is needed by both the broker and the trader. It is therefore very important to check if the Forex broker you trust your money with uses segregated account for your funds or not. The best part is that Forex regulatory bodies enforce brokers to maintain segregated accounts. It is therefore rare to find Forex brokers that do not maintain segregated account if they are regulated.