What is a segregated account?

A segregated account is a dedicated account where customer’s money is kept completely separate from company funds.All deposits to a segregated account must originate from a customer account of the same name and all withdrawals must be sent to a customer account of the same name, no third party deposits or withdrawals are accepted.

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.  In a segregated account customer funds can not be used for any purpose other than satisfying margin requirements and trading.

Financial Safeguard System  (FSS) which maintains aggregate performance bonds of approximately $139 billion. In the event a FSS firm goes bankrupt resulting in a shortfall of customer funds the resulting shortfall is taken out of the 139 billion restoring all accounts to their actual liquidating balance plus or minus trade activity.

What is wrong with a broker offering non-segregated accounts?

If a 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.

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.

Contact us with your questions and we’ll provide you with an objective opinion and links for additional information and/or verification.

Regards,
Peter Knight
Advisor

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RISK DISCLOSURE STATEMENT

PROGRAM AVAILABILITY IS DEPENDENT ON YOUR COUNTRY OF RESIDENCY AND FINANCIAL STATUS.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE. THE RISK OF LOSS IN TRADING CASH MARKET, FOREX OR FUTURES CONTRACTS OR OPTIONS CAN BE SUBSTANTIAL, AND THEREFORE INVESTORS SHOULD UNDERSTAND THE RISKS INVOLVED IN TAKING POSITIONS AND MUST ASSUME RESPONSIBILITY FOR THE RISKS ASSOCIATED WITH SUCH INVESTMENTS AND FOR THEIR RESULTS.

BID/ASK SPREADS, BROKERAGE COMMISSION, CLEARING, EXCHANGE AND REGULATORY FEES WILL HAVE AN ADVERSE IMPACT ON THE NET OVERALL PERFORMANCE OF YOUR ACCOUNT. PRIOR TO MAKING A DECISION TO PARTICIPATE IN ANY INVESTMENT MAKE SURE YOU FULLY UNDERSTAND THE FEES ASSOCIATED WITH TRADING.

EXAMPLES OF HISTORIC PRICE MOVES OR EXTREME MARKET CONDITIONS ARE NOT MEANT TO IMPLY THAT SUCH MOVES OR CONDITIONS ARE COMMON OCCURRENCES OR ARE LIKELY TO OCCUR.

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT.

IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADE PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF THE HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.

YOU SHOULD CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES AND FINANCIAL RESOURCES.

THE INFORMATION PROVIDED IN THIS REPORT CONTAINS RESEARCH, MARKET COMMENTARY AND TRADE RECOMMENDATIONS. YOU MAY BE SOLICITED FOR AN ACCOUNT BY ONE OF OUR REPRESENTATIVES OR EMPLOYEES. IT SHOULD BE KNOWN THAT THE REPRESENTATIVES OF OUR FIRM MAY TRADE FUTURES AND OPTIONS FOR THEIR OWN ACCOUNTS OR THOSE OF OTHERS. DUE TO VARIOUS FACTORS (SUCH AS MARGIN REQUIREMENTS, RISK FACTORS, TRADING OBJECTIVES, TRADING INSTRUCTIONS, TRADING STRATEGIES, AND OTHER FACTORS) SUCH TRADING MAY RESULT IN THE LIQUIDATION OR INITIATION OF FUTURES OR OPTIONS POSITIONS THAT DIFFER FROM THE OPINIONS AND RECOMMENDATIONS FOUND IN THIS REPORT.