Last update: 11 March 2020
4 min read

Best Forex Brokers with Segregated Accounts

Choosing Forex brokers with segregated accounts is one protective measure you could choose to take. Segregated accounts mean clients’ funds are kept safe and separate from the broker’s own capital. We should point out, however, that it does not offer 100% protection. Traders have a right to receive compensation should a company be declared bankrupt or forced into liquidation. However, the actual amount will depend on the rules and regulations in the country where the broker is registered.
What is most important is not that a broker offers segregated accounts, but how much a trader would be able to recover should anything go wrong.

What is a segregated account?

segregated accountsIn the Forex industry, brokers can either choose or be obliged to open segregated accounts for their customers. A segregated account is a dedicated account where customer’s money is kept completely separate from the company funds. These separate accounts can either be for individual clients or a joint one for all clients. It’s usual for the account to be a joint one in the retail Forex market, unless an individual account has been negotiated for larger investors.

The main reason for segregated accounts is to protect customer investments by preventing the company from using the funds in the course of their business. The company may want to use the customer funds for their own risk, expenses, and obligations. Say for example, the company account became overdrawn. Customer funds could not be used to redress the balance.

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What is wrong with a Forex broker offering un-segregated accounts?

If a Forex broker has no account segregation they will be able to use clients’ funds as margins against their own positions, that might have been opened to take advantage of hedging opportunities against their own clients’ trades. If a broker that has no segregated account provision faces difficulties getting out of his positions, the funds belonging to the clients will always be under risk. If client funds are segregated this is not going to happen.

What happens if a Forex broker is declared bankrupt?

In the sad eventuality of bankruptcy, what happens to clients’ funds will depend on the laws and regulations of the country in which the broker operates and holds accounts. Let’s look at a couple of examples:
In the UK – Clients funds are protected and in the event of a broker being declared bankrupt, neither the broker’s main creditors, banks, or company liquidators can be compensated from client funds. Compensation is paid according to an approved scheme, in accordance with existing regulations. Individual clients are responsible for inquiring about schemes available for their chosen broker.
In Switzerland – A liquidator is usually appointed by the Federal Banking Commission,and usually ranks client funds as a general unsecured creditor or failed company. But this is only relevant when a broker is forced into liquidation or is declared bankrupt.
Many banks worldwide adopt similar schemes. But you should check with the regulatory body of the country you are doing business in to be sure of the latest level of protection of your funds.

Why the need for segregated accounts came about

A segregated account is a bank account where customer’s fund are kept entirely separate from the funds of a brokerage firm. It has become common practice so clients’ funds aren’t used for the wrong purposes. Should a broker become bankrupt it also ensures that customer funds are easily identified. Some country regulations state that segregated accounts can’t be used to pay creditors, and should be returned to the customers.
Segregated accounts also ensure the brokers money and the clients money are not mixed up, and the client’s money isn’t used for operational expenses. In the past, it was common for unscrupulous brokers to use their client’s money for their own gain, but it also put their clients money at risk of being lost. A segregated account is a measure of protection for a trader’s money, and protects against dishonest and fraudulent behavior.
However, there is a downside, and that is the effectiveness is limited. Segregated accounts are often under the control of senior management who could still feel the pressure to dip into the segregated accounts.
When it comes to trading Forex there are a number of decisions to be made before starting to invest your own money. We’d advise any newcomers to try some strategies by opening a demo account before trading for real. That way you can get a good feel for the platforms, and understand how the charts and other tools work. Rushing head long into opening a real money account is only opening yourself up to the risk of sizeable losses. Start your Forex investment career slowly and gain as much knowledge as you can. Read some of our other pages and you’ll be armed with all you need to make the best choices.

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