What is trust protection for overseas forex trading? We'll also explain how it compares to segregated accounts

"I want to know how overseas forex brokers manage funds."
"What happens to my funds if an overseas forex broker goes bankrupt?"
"What is the difference between trust protection and segregated accounts?"

To start trading with an overseas forex broker, you need to deposit investment funds with the broker. Therefore, you may have questions about how your deposited investment funds are managed and whether they are managed securely

The two main methods of fund management used by overseas forex brokers are trust protection and segregated accounts. Trust protection is a method of managing funds received from investors by depositing them with a trust bank.
On the other hand, segregated accounts is a method of managing investor funds separately from the company's own operating funds without using a trust bank.

This article clearly explains the characteristics and differences between trust protection and segregated accounts, as well as key points to consider when choosing an overseas forex broker. We also answer frequently asked questions about trust protection in overseas forex brokers, so please read to the end

What is trust protection in overseas forex trading? We also explain the difference from segregated accounts

This section explains the difference between trust protection and segregated accounts in overseas forex trading

List of overseas forex brokers that offer trust protection and segregated accounts

The overseas forex brokers that offer trust protection and segregated accounts are listed in the table below

Name of overseas forex company	Asset management methods
Axiory	Trust protection
Tradeview	Trust protection
Myfx Markets	Separate management
GEMFOREX	Separate management
Titan FX	Separate management
HFM	Separate management
Exdefine	Separate management
XM	Separate management

It is clear that many overseas forex brokers manage funds through segregated accounts

Trust protection in overseas forex trading is a form of "fund management."

Trust protection is a type of asset management designed to guarantee the assets entrusted by investors. Undertrust protection, the entrusted assetsare managed not by the company itself, but by an external trust bank.

By keeping your funds separate from the operating funds of the overseas forex company and depositing them in a trust bank, your funds will be protected even if the overseas forex company's management deteriorates

However , please note that trust protection is not a guarantee of principal, but rather an asset management method to guarantee assets after trading in overseas forex

All FX companies licensed by Japan's Financial Services Agency have trust protection All domestic FX companies licensed by Japan's Financial Services Agency are covered by trust protection. While overseas forex companies are not required to provide trust protection, domestic forex companies licensed by the Financial Services Agency are required to provide trust protection to guarantee investors' assets Trust protection is one of the indicators of the safety of an FX company, so domestic FX companies, which are required to have trust protection, are considered safer than overseas FX companies that do not have trust protection

This will be useful in case the FX company goes bankrupt

Even if an overseas forex company that has implemented trust protection goes bankrupt,the assets deposited by investorsare guaranteed to be fully refunded.

If an overseas forex company goes bankrupt, the process by which investors' assets are returned from the trust bank is as follows:

① Investor deposits funds into overseas forex company
② Overseas forex company deposits funds into trust bank
③ Overseas forex company goes bankrupt, assets deposited into trust bank become unusable
④ Trust bank refunds funds to beneficiary representative (e.g., lawyer)
⑤ Beneficiary representative refunds funds to investor

In trust protection, investors' assetsare deposited with a trust bank, separate from the operating funds of the overseas forex company, in order to protect investors' assets.Therefore, even if the overseas forex company goes bankrupt, the investors' assets deposited with the trust bank will not be seized.

Please note that there is no compensation for losses due to exchange rate fluctuationsTrust protection isA system to protect investors when an FX company goes bankruptTherefore, no compensation will be provided for losses due to exchange rate fluctuations Therefore, if the margin maintenance ratio falls due to rapid exchange rate fluctuations, losses may occur

The difference from separate waste management is..

Segregated management ismethod of asset management that clearly separates a company's operating funds from investors' assets.

Unlike trust protection, overseas forex brokers must manage both their own assets and investor assets because they manage assets without using a trust bank

Therefore, if an overseas forex broker's business deteriorates,both the company's assets and investors' assets may be seized.

Because overseas forex companies are not required to have trust protection, there is a possibility that investors' assets may not be returned

Since segregated accounts are less secure than trust protection, when using segregated accounts, choose a highly secure overseas forex company that publicly discloses information about the banks where they are segregated on their official website

Is trust protection safe? 3 points to consider when choosing an overseas forex broker

When choosing an overseas forex broker, there are three key points to check:

① Does it hold a highly secure financial license?
② Does it have a sufficient operating history and track record?
③ Does it clearly state on its official website that it manages assets separately?

I will explain them in order

① Does it have a highly secure financial license?

When choosing an overseas forex broker, make sure to check if they hold a highly secure financial license. A financial license is a permit required to conduct financial business, such as forex trading

To obtain a financial license, overseas forex companies must meet the strict requirements of the issuing country regarding their management and trading status, so brokers that hold such licenses are considered safe

The following are highly secure financial licenses

• Source: UK Financial Conduct Authority (FCA) official website

The FCA financial license is a UK financial license that is said to be the most difficult to obtain in the world

FX companies that have obtained FCA certificationare required to join the Financial Services Guarantee Corporation, and in the event of a foreign FX company's bankruptcy, they are guaranteed up to 13 million yen per person.

To obtain a financial license, it is necessary to join a Financial Services Guarantee Corporation and create a Customer Funds Handling Regulation (CASS). A CASS is a set of regulations that ensure that investors' assets are segregated and managed by a trust bank or similar institution in the event that an overseas forex broker goes bankrupt

• the Cyprus Securities and Exchange Commission (CySEC):Cyprus Securities and Exchange Commission (CySEC) official website

The CySEC financial license is considered the second most difficult to obtain after the UK's FCA financial license

Membership in the Investor Compensation Fund (ICF) is mandatory, and in the event of an FX broker's bankruptcy, investors are guaranteed up to approximately 2.7 million yen per person

In addition, measures such as the introduction of a zero-cut system and leverage restrictions are necessary to protect investors

• Mauritius Financial License (FSC)(Source:Mauritius Financial License (FSC) Official Website)

The Financial Services Commission (FSC), a comprehensive authority in the Republic of Mauritius,requires the submission of corporate documents such as capital and business plans, as well as an audit, in order to obtain a financial license.

These financial licenses can be revoked if the company does not continue to undergo regular audits and inspections after obtaining them. Therefore,overseas forex companies that maintain their financial licenses are highly reliable.

Overseas forex brokers that do not hold a financial license pose risks such as refusing withdrawals or disappearing if problems arise. Before opening an account, be sure to check the financial licenses they hold on their official website

Furthermore, many overseas forex companies do not hold a Japanese financial license.This is becausethere is no benefit for overseas forex companies to obtain a Japanese financial license.

While overseas forex trading offers attractive high leverage of nearly 100 times, leverage in Japan is limited to a maximum of 25 times. Leverage trading is a trading method that aims for large profits with a small investment, similar to the principle of a lever

If overseas forex brokers obtain a Japanese financial license, the leverage limit will be restricted to 25 times, which would eliminate the appeal of overseas forex trading

Furthermore, the zero-cut system, a feature of overseas forex brokers where the broker covers any negative balances in your account, will no longer apply

thiswould diminish the appeal of overseas forex trading, no overseas forex brokers are proactively seeking to obtain a Japanese financial license.

② Does the company have a sufficient operating history and track record?

The length of time an overseas forex broker has been operating and its track record are also indicators of its safety .

While it's understandable to be concerned about whether overseas forex brokers without trust protection will provide proper compensation in the event of bankruptcy, a long operating history is evidence of sound and reliable management

Overseas forex brokers that have maintained sound management practices have a low risk of bankruptcy to begin with, so if they have a sufficient track record and operational history, you can use them with peace of mind

A short operating history does not necessarily mean a fraudulent business However, a short operating history does not necessarily mean a company is unscrupulous While overseas forex brokers with a long history of operation tend to maintain sound and reliable business practices,there are also overseas forex companies with a short history that continue to operate soundly and honestly.

③ Does the official website explicitly state that waste is being managed separately?

Overseas forex companies that do not have a financial license may disappear if something goes wrong

Because of the potential risks of misappropriation of deposited assets or refusal of withdrawals,check the official website of the overseas forex company to see if it displays the financial licenses it has obtained and clearly states that it manages funds separately.

Q&A regarding trust protection in overseas forex trading

Here are three frequently asked questions regarding trust protection in overseas forex trading

1. How much will be covered by the trust protection?
2. Why isn't trust protection mandatory for overseas forex trading?
3. How can I identify overseas forex companies that are less likely to go bankrupt?

I will explain them in order

Q. How much will be covered by the trust protection?

If an overseas forex broker with trust protection goes bankrupt,all assets deposited by investorsare guaranteed to be returned.

Trust protectiona system that protects investors' assets by managing them separately from the operating funds of overseas forex companies through a trust bank.

Therefore, even if an overseas forex company goes bankrupt, you can rest assured that all of the investors' assets deposited with a trust bank will be compensated and guaranteed

Q. Why isn't trust protection mandatory for overseas forex trading?

Implementing trust protection incurs costs such as personnel expenses and external auditor fees. Therefore, many overseas forex companies choose segregated accounts instead of trust protection, as this reduces costs

Furthermore, because holding a financial license means the government will guarantee investors' assets, an increasing number of overseas forex companies are prioritizing obtaining financial licenses and improving their trading environments

We strive to provide stable services and develop new services by increasing investor satisfaction

Q. How can I identify overseas forex companies that are less likely to go bankrupt?

Here are three key points to consider when identifying an overseas forex company that is less likely to go bankrupt:

1. Does the company have a trust protection system in place, or does its official website explicitly state that it uses segregated accounts?
2. Does it have a reliable financial license?
3. How long has it been in operation and what is its track record? Has it been providing services to Japanese customers for a long time?

Overseas forex companies that have implemented trust protection are less likely to go bankrupt and are highly reliable

However, many overseas forex companies use segregated accounts. Therefore, it is important to first check whether they explicitly state on their official website that they use segregated accounts,or whether they have obtained a financial license that guarantees your assets in the event of bankruptcy.

summary

This page explains the difference between trust protection and segregated accounts in overseas forex trading, and provides key points to consider when choosing an overseas forex broker

Finally, let's review the important points

• Trust protection means that the assets received are deposited and managed by an external trust bank
• Even if an overseas forex broker with trust protection goes bankrupt, the deposited funds are guaranteed
• Japanese FX brokers are required to have trust protection
• Segregated management means that assets are managed by other banks or institutions without using a trust bank
• Highly secure overseas forex brokers have obtained financial licenses
• Financial licenses must be subject to regular audits and inspections
• There is no benefit for overseas forex traders to obtain a Japanese financial license

in overseas forex tradingis not a guarantee of principal, but rather a method of asset management to protect assets after trading in overseas forex. Please note that it does not cover losses due to exchange rate fluctuations.

When choosing an overseas forex broker, be sure to consider factors such as their fund management methods, track record of obtaining financial licenses, and customer reviews regarding services provided to Japanese clients