I want to clear up some misconceptions around segregated accounts.
When a broker tells you that your funds are kept in a segregated account, it means that they keep client deposits in a separate account to the money they use for the operation of the business.
Firstly, yes this is a good thing. In the past, some brokers deposited client funds into their operating account, and used them for all sorts of purposes. Sometimes this ended very badly.
Now that funds are kept separate, it means that brokers do not typically use client funds for operating expenses (I use the word typically in the above sentence on purpose). What is more important, though, is what“segregated funds” does not mean:
1. It does not mean you have your own individual bank account with the broker. Your funds are mixed in with other clients’ funds. So if a client goes into negative balance, that client’s deficit is taken out of that account as a whole (although the broker will generally top it up). They literally just track how much money is in each client’s account in the back office accounting program.
2. It does not mean the broker cannot use the funds for margin. Unless you are specifically advised by your broker, you will likely find that the segregated account is used for margin that the broker might be required to put up for the positions it holds (either prop trading positions, or off-setting client positions). So your funds in this sense can be used as margin on another client’s position.
3. Most importantly, it does not mean your funds are secured if the broker goes bankrupt. When you hand your funds over to a broker, for all intents and purposes they become the broker’s funds. If the broker goes bust, and has more debt than operating capital, your funds in the segregated account can be used to pay off that debt. You are not necessarily going to be first in line for your own money. It will depend:
a. If other creditors in line are secured
b. On the rulings made in the insolvency process
Basically what this means is that you may or may not get your money back, even though the account is segregated.
While segregated accounts are a good thing, please don’t think that they are something they are not. You can still lose your funds if they are in a segregated account.
FX Renew Pty Ltd ABN 50 168 652 542 the holder of an Australian Financial Services Licence (AFSL) to carry on financial services business in Australia, limited to the financial services covered by its AFSL no.455388. Any advice or correspondence is general advice only and is based solely on consideration of the investment or trading merits of the financial products alone, without taking into account the investment objectives, financial situation or particular needs (i.e. financial circumstances) of any particular person. Before making an investment or trading decision based on the general advice, the recipient should carefully consider the appropriateness of the advice in light their financial circumstances and should carefully review FX Renew's FSG and terms and conditions. FX Renew is not liable for any loss or damage, including without limitation, any loss of profit, which may arise directly or indirectly from the use of or reliance on such information. Past results are not a guarantee of future performance. RISK DISCLOSURE Trading foreign exchange carries a high level of risk, and may not be suitable for all investors. The high degree of leverage available can magnify profits and as well as losses. You can lose more than your initial deposit. Before trading, please carefully consider the risks and inherent costs and seek independent advice as required. Please contact us, to discuss any questions or concerns you may have, we are here to help.
Editors’ Picks
EUR/USD stays defensive below 1.1900 as USD recovers
EUR/USD trades in negative territory for the third consecutive day, below 1.1900 in the European session on Thursday. A modest rebound in the US Dollar is weighing on the pair, despite an upbeat market mood. Traders keep an eye on the US weekly Initial Jobless Claims data for further trading impetus.
GBP/USD holds above 1.3600 after UK data dump
\GBP/USD moves little while holding above 1.3600 in the European session on Thursday, following the release of the UK Q4 preliminary GDP, which showed a 0.1% growth against a 0.2% increase expected. The UK industrial sector activity deteriorated in Decembert, keeping the downward pressure intact on the Pound Sterling.
Japanese Yen strengthens on renewed verbal intervention
USD/JPY extends its losses for the fourth successive session, trading around 152.90 during the Asian hours on Thursday. The pair weakens as the Japanese Yen strengthens following renewed verbal intervention from Tokyo.
Editors’ Picks
GBP/USD holds above 1.3600 after UK data dump
\GBP/USD moves little while holding above 1.3600 in the European session on Thursday, following the release of the UK Q4 preliminary GDP, which showed a 0.1% growth against a 0.2% increase expected. The UK industrial sector activity deteriorated in Decembert, keeping the downward pressure intact on the Pound Sterling.
EUR/USD stays defensive below 1.1900 as USD recovers
EUR/USD trades in negative territory for the third consecutive day, below 1.1900 in the European session on Thursday. A modest rebound in the US Dollar is weighing on the pair, despite an upbeat market mood. Traders keep an eye on the US weekly Initial Jobless Claims data for further trading impetus.
Gold sticks to modest intraday losses as reduced March Fed rate cut bets underpin USD
Gold languishes near the lower end of its daily range heading into the European session on Thursday. The precious metal, however, lacks follow-through selling amid mixed cues and currently trades above the $5,050 level, well within striking distance of a nearly two-week low touched the previous day.
Cardano eyes short-term rebound as derivatives sentiment improves
Cardano (ADA) is trading at $0.257 at the time of writing on Thursday, after slipping more than 4% so far this week. Derivatives sentiment improves as ADA’s funding rates turn positive alongside rising long bets among traders.
A tale of two labour markets: Headline strength masks underlying weakness
Undoubtedly, yesterday’s delayed US January jobs report delivered a strong headline – one that surpassed most estimates. However, optimism quickly faded amid sobering benchmark revisions.
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