What is a custodian?
If you own a bank account, you must have executed transactions through different means (cards, cheques etc) on that account, and obtained a summary of your activities from the bank at some point. In this simple narrative, the bank is the custodian of your asset. A custodian is any entity (usually a financial institution) that holds securities and assets for customers either in electronic of physical form. In addition to overseeing and guaranteeing your transactions, custodians may offer a range of other services, including collecting your dividends, paying you interests, and custodian service in FX.
Custodian Services in FX
In foreign exchange, customers access the market through brokerages. Brokerages are collaterized at a Prime broker with the deposits from their clients for liquidity, and must comply with regulatory requirements, one of such being; to maintain capital position equal at all times to the gross dollar deposits of their customers, or risk liquidation. If a brokerage gets liquidated, the customers suffer the brunt and receive pennies on the dollar.
A custodial account protects customers against the risk of brokerages becoming insolvent. It is essentially an escrow account in the customers name but administered by the custodian through a power of attorney. The custodian is authorized to debit or credit the account for profits or losses within 24 hours of the close of trading day.
Advantages of a Custodial account
- Protection and Security: This account type protects the client from unforeseen events; including unsavory risk management strategies of the brokerage.
- Fund Segregation and Management: The client has unfettered information regarding their equity rather than an ambigous report of mingled brokerage funds
There are a number of Custodial services on offer in the FX industry. Contact Consulting Forex to help determine your eligibility and establish the best custodial offer for your business.[contact-form-7 404 "Not Found"]