Importance of escrow accounts for forex trading for Start-ups

Just like equity, forex trading is a popular choice that involves buying and selling foreign currencies to make a gain. As a Start-up, you can engage in forex trading to boost business revenue and profitability.

For this, an escrow account is useful, especially when trading in foreign exchange. A way of routing money, escrow accounts make trade settlements easier and more convenient. Let’s understand more about it and how you can benefit.

What is an escrow account?
 

An escrow account is a third-party account that holds funds to exchange between two parties. When two parties agree, one party pays while the other receives. To ensure payment, the payer can open an escrow account with a third party and deposit the funds. The third party will hold the funds on behalf of the payer till it is successfully transferred to the receiver.

For instance, say Mr. Mehta enters into a trade with Mr. Rao and the former is liable to pay Rs 1 crore to the latter after a few months. Mr. Mehta opens an escrow account with a company and transfers the Rs 1 crore. The company will then hold the amount till it is tp be paid to Mr. Rao.

In forex trading, Start-ups can use the escrow account to set aside funds for the trade. Then, as they trade, the account would transfer the money for successful transactions.

Advantages of using an escrow account for Start-ups
 

Some of the escrow account advantages include –

• Protection of funds
  
  The escrow account is supervised by a third party who only transfers the funds when the trading is complete. The funds are always secure in the meantime.
• Mitigation of payment risks
  
  The payment default risk minimises when the funds are parked in the escrow account. The receiver is assured of the payment allowing the Start-up to trade easily.
• Increased transparency
  
  You can see the funds in the escrow account and track their movement. This lends complete transparency to how your funds are being stored and transferred.
• Reduced transaction costs
  
  Opening an escrow account involves little cost. Moreover, as you use the account to pay for the trades, the cost of frequent withdrawals from your bank account is also reduced. This lowers the overall transaction costs.

Factors to consider when choosing an escrow account provider
 

There are multiple financial institutions offering escrow accounts for Start-ups. Keep these factors in mind when choosing the most suitable financial institution -

• Security and reliability
  
  As forex trading has gone online, you need a tech-enabled escrow account safe from cybercrimes. So, choose a financial institution that has the best-in-class security features. The financial institution should be reliable enough to transfer the funds when needed.
• Fees and charges
  
  The fees and charges associated with the account are important points to consider. Financial institutions having the lowest fee structure are better as you can reduce transaction costs.
• Availability of customer support
  
  You might need assistance when your account has a glitch or discrepancy. Financial institutions having a dedicated customer support channel will be a better choice. You will be able to get resolutions for your queries whenever you want.
• Reputation and track record
  
  Check the reputation and track record of the financial institution. Brands with a good market presence, goodwill, and reputation would be a good choice.

For instance, IDFC FIRST Bank has a good reputation in the banking industry. You can choose its Escrow Management Services and do more with that escrow account.

Also read - Beyond funding: How can startups benefit from IDFC FIRST WINGS?

In conclusion
 

Forex trading involves trading in a volatile market. While focusing on making the most gains from the trade, transfer the payment worries to the escrow account provider like IDFC FIRST Bank Start-up Banking Solutions. Simply open the account, transfer the necessary funds, and instruct IDFC FIRST Bank to pay for the trades for a hassle-free settlement while you focus on profits.

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.