Segregated Forex trading accounts have become the industry standard over the past two decades following several scandals involving brokers using client deposits .
Forex traders should always use segregated account brokers to ensure the safety and security of their capital, but how can you tell if a broker segregates your deposits from their working capital? Read my segregated account brokers review, to learn how to protect your hard-earned deposits.
- AvaTrade, Highly regulated, choice of fixed or floating spreads.
- FP Markets, ECN trading with leverage up to 1:500.
- Pepperstone, Great ECN execution on MT4/5, cTader, TradingView and Pepperstone proprietary platform.
AvaTrade
In Summary Highly regulated, choice of fixed or floating spreadsI rank AvaTrade among segregated account brokers with the best features for novice traders due to its first-class education via the AvaAcademy. The MT4 Guardian Angel plugin and the fee-based Ava Protect insurance policy protecting against losses are quality beginner trading tools. It also has an excellent partnership program for passive income seekers, featuring 70,000 registered partners and $250,000,000+ in commission payouts.
AvaTrade offers its proprietary WebTrader and mobile app AvaTradeGO with Trading Central services, specialized trading platforms Ava Option and Ava Social, and MT4/MT5 for algorithmic traders. The well-balanced asset selection includes cryptocurrencies, ETFs, and options.
Pros & Cons
- High quality educational offering via AvaAcademy
- Excellent choice of trading platforms catering to various trading needs
- Broad asset selection and cross-asset diversification opportunities
- Well-regulated and trusted broker with oversight from a central bank
- Trading costs competitive but nothing special
FP Markets
In Summary ECN trading with leverage up to 1:500FP Markets upgrades MT4/MT5 with 12 plugins and Trading Central. It also offers cTrader, the geographically restricted IRESS trading platform, and connects social traders to TradingView, where 50M+ social traders interact and share ideas. MAM/PAMM accounts cater to traditional account management services. Meanwhile, copy traders can diversify via embedded MT4/MT5/cTrader services, the in-house FP Markets Copy Trading, Myfxbook AutoTrade, and the fee-based Signal Start. It places FP Markets as the segregated account broker ideal for copy traders.
The well-balanced asset selection includes cryptocurrency and ETF CFDs, and FP Markets offers low commission-based trading fees. VPS hosting ensures 24/5 low-latency Forex trading.
Pros & Cons
- Choice of trading platforms and auxiliary trading tools
- Very competitive cost structure and excellent asset selection
- Low minimum deposit requirement and leverage of up to 1:500
- Well-regulated and trustworthy
- Availability of Iress geographically restricted
Pepperstone
In Summary Great ECN execution on MT4/5, cTader, TradingView and Pepperstone proprietary platformI rank Pepperstone among the segregated account brokers with the most cutting-edge trading tools. It starts with Capitalise AI for algorithmic trading in a code-free environment, which separates Pepperstone from most Forex brokers. The 28-plugin Smart Trader Tools package and Autochartist upgrade MT4/MT5. Pepperstone also connects social traders to TradingView and offers cTrader.
VPS hosting is available for 24/5 low-latency Forex trading, while APIs connect advanced algorithmic trading solutions to the Pepperstone infrastructure. The well-balanced selection includes cryptocurrencies and ETFs. Pepperstone also features competitive, commission-based trading fees with raw spreads from 0.0 pips for a $6.00 commission per round lot.
Pros & Cons
- Excellent choice of trading platforms consisting of MT4/MT5, cTrader, TreadingView and Pepperstone Platform
- Market-leading MT4/MT5 upgrade package, Autochartist, and API trading
- Social trading support via Signal Start, MetaTrader Signals, Copy Trading by Pepperstone, DupliTrade
- Leverage of up to 1:400 depends on jurisdiction and superb trade execution
- Demo accounts have 60-day time limits
What Is a Segregated Account?
A segregated account refers to the separation of client deposits from corporate funds. It means that the broker accepting deposits cannot use client deposits for any purpose except satisfying margin requirements for open positions. Segregated account brokers are the industry-standard, and segregation of client deposits is a regulatory requirement. Therefore, traders should always deposit with a broker operating with a license and a clean track record from a reputable regulator.
Why Do You Need a Segregated Account in Forex?
Traders must use segregated account brokers, as it is the only guarantee, ensuring legal protection that brokers act as custodians of capital without misusing funds for internal purposes. It also confirms regulatory compliance, boosts confidence, and ensures that traders can access their funds as they please, as segregated account brokers will always honor valid withdrawal requests.
Regulation & Segregated Accounts
Segregated account brokers fully comply with regulators, as they must prove client segregation from corporate funds to obtain a regulatory license. Regulators also check if brokers comply with all rules and regulations annually and are quick to issue fines or suspend licenses if brokers fail to follow all requirements satisfactorily. It makes trading with segregated account brokers in reputable jurisdictions a core risk management strategy. Traders should always avoid unregulated brokers or those operating in jurisdictions where segregated accounts are not mandatory.
Differences Between Segregated Accounts and Managed Accounts
Traders must understand the differences between segregated and managed accounts. Segregated account brokers may offer the infrastructure for managed account services under their corporate umbrella.
Aspect | Segregated Accounts | Managed Accounts |
|---|---|---|
Account Structure | Segregated account for each client | Pooled investments of multiple clients |
Capital Protection | Protected capital in case of broker insolvency | No protection |
Decision Making | Clients make all trading decisions | Fund managers make all trading decisions |
Fees | Broker fees | Management fees, which include broker fees |
Involvement | Active involvement by clients | Passive involvement by clients |
Ownership | Clients’ own capital | Clients trust capital with fund management |
Purpose | Safeguard client deposits | Manage client deposits |
Regulatory Requirements | Regulatory-mandated segregation of capital | Regulatory oversight with varying degrees |
Strategy | Clients choose strategy | Fund managers choose a strategy |
Transparency | Clients can monitor the capital status | Dependent on fund manager transparency |
How to Determine Whether a Broker Uses Segregated Account
Segregated account brokers always note their segregation of client deposits from corporate funds, and the most transparent segregated account brokers list the banks they use. The easiest way to know whether a broker uses segregated accounts is by trading with a regulated broker with a license from a reputable regulator, a mandatory requirement checked by regulators annually.
Segregated Accounts vs. Separate Accounts
Segregated account brokers always segregate client deposits from corporate funds, offering legal protection of capital against misuse, fraud, and theft. A separate account has no legal protection and could refer to a sub-account within a corporate account where an unregulated broker deposits capital.
Segregated Accounts - Pros & Cons
Before funding accounts with segregated account brokers, traders should consider the pros and cons of segregated account brokers.
The Pros of Segregated Account Brokers
- Protection of client funds under a legal umbrella.
- Regulatory compliance, as reputable regulators make client segregation mandatory.
- Risk mitigation, as brokers cannot use client funds for internal purposes.
- Transparency and accountability by brokers.
The Cons of Segregated Account Brokers
- There are no cons to using segregated account brokers.
Bottom Line
Segregated account brokers are the industry standard and ensure that client deposits have legal protection against misuse and fraud. Before client segregation became a regulatory requirement with reputable regulators, brokers could access funds, and fraud was more common.
Trading with segregated account brokers does not just legally safeguard deposits but is a necessary risk management approach by traders and brokers. Regulators ensure that brokers comply with the segregation of client deposits and all other requirements to maintain the license.
