A Segregated Account: What It Is and Why You May Need One
A forex company can choose or be obligated to open segregated accounts for their customers so that the brokers’ money and the clients’ funds are not mixed up. What is a segregated account, and what are the benefits of such accounts?
There are a number of decisions to be made when you run an online business, especially when you operate in the forex industry and apply for a forex merchant account. In many cases, the funds belonging to the clients may be at risk, so they need assurance that their funds are separate from the broker’s capital.
What is a segregated account?
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.
What are the benefits of segregated accounts?
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:
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.)
Latest posts by Sandra Wróbel-Konior (see all)
- What to Consider When Choosing a Payment API - February 3, 2021
- Visa Rules for Enhanced Risk Performance—What You Should Know - January 20, 2021
- Credit Card Chargebacks: Merchants’ Rights - November 10, 2020