All sorts of businesses utilise segregated accounts for various reasons, but those that operate in a highly regulated industry, such investment funds, insurance companies, brokers, and payment service providers, use them the most.
What is a segregated bank account in Forex trading?
When a business is legally allowed to hold customer funds in a segregated account at a third party, typically a bank, that account is protected from the business’s own funds.
The primary function is to prevent the licenced business from misusing its clients’ assets and funds. Having separate client accounts can assist ensure that their money is safe from any potential financial instability the business may experience.
Client funds would remain secure even if the company went bankrupt.
To ensure that their clients’ funds are secure, the best brokers for trading undertake frequent audits of their segregated asset accounts. The most reputable brokers will also only use Tier-1 bank accounts to store client funds, such as with Khwezi Trade.
Why safety of funds is important in Forex trading
There is a widespread misconception that the funds of traders who use a broker or an online exchange are completely safe. The failure of several major broker has, nevertheless, highlighted the need to use a regulated brokerage with separate client accounts, such as FSCA-regulated broker Khwezi Trade.
If a broker separates client money from the company’s own, it should be able to fulfil any withdrawal requests from customers. When a large number of traders withdraw their assets at once, however, companies that don’t employ segregated accounts risk being exposed and losing their customers’ trust.
How segregated accounts protect your money
One of the most important uses for segregated accounts is to prevent commingling, or the mixing of monies from different sources.
Unlike the company’s general assets, the money in a segregated account is protected from the company’s access.
If that happens while the money is still in the customer’s account, debt collectors have no legal right to get their hands on it.
Client assets can be returned to them more quickly in the event of the company’s insolvency than if they were held in another form of account.
Segregated accounts also protect customers’ money in the case of the company’s insolvency, closure, or suspension of operations.
Segregated accounts offer many benefits to traders in terms of risk management and openness, making them a popular choice for storing and protecting cash and investments.
Traders who use segregated accounts can be assured that their funds, stock, or bonds will be safe from any fraudulent activity on the part of the broker or custodian.
Furthermore, a segregated account makes it simple for clients to get their money out of the broker’s hands if their relationship with that broker goes sour.
Why regulation matters
Segregated customer funds are a requirement of the most respectable financial authorities, and this is the case for both stocks and forex brokers. Organizations like South Africa’s Financial Sector Conduct Authority (FSCA) fall within this category.
There is a distinction between separate and segregated fund accounts despite their similar names. The term “separate account” refers to individualised investment accounts that are typically co-managed with a financial advisor.
Client monies are kept in separate bank accounts, or “segregated accounts,” so that brokers cannot use the assets for their own purposes.
When you trade with an FSCA-regulated broker like Khwezi Trade, you as a trader are assured that your money is segregated entirely from that of the broker’s own funds, and stored with a reputable financial institution in South Africa.
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