Segregated Client Accounts: What ‘Your Money Is Protected’ Actually Means

‘Your money is protected’ is a phrase every broker can say and few traders interrogate. In most cases the protection being referred to is segregation: client money held in accounts separate from the broker’s own funds. Segregation is real, it is legally meaningful, and it is not insurance. This article sets out what segregation does, what it cannot do, and how to check how your own broker holds client money.

What a segregated client account is

A segregated client account is a bank account held in the broker’s name for the benefit of clients, kept apart from the accounts the broker uses for its own operations. Money paid in by clients goes into that ring-fenced pool, and withdrawals from it are made only for client purposes — funding trading positions, returning funds, and the operational costs of running the client money function.

The detail is written into rulebooks. The FCA’s CASS 7 client money rules, published in the FCA Handbook’s CASS 7 chapter, are one jurisdiction’s published version; ASIC’s client money rules in Australia and CySEC’s regime in Cyprus are others. They differ in detail, which is exactly the point: segregation is a requirement of a specific regulator, applied to the entities it supervises.

What segregation protects against

Segregation protects against client money being treated as part of the broker’s own assets. If a broker becomes insolvent, its general creditors cannot simply reach into the client pool, because that money is not the broker’s. The pool is meant to be returned to clients, subject to the mechanics of the insolvency and any shortfalls.

It also protects against a broker using client money for its own trading or its own debts. Where the rules require segregation, using the client pool for the firm’s own account is a breach, not a feature. That is the core of what the phrase ‘your money is protected’ refers to. In practice the arrangement is administrative as much as legal: client money is banked under account titles that mark it as client property, the pool is reconciled against client balances on a regular schedule, and the rules specify what the broker may and may not do with it. The protection, in other words, is a structure you can see described in documents and verify through disclosure — not a single promise that fills a marketing box. How the rules differ between the three regulators most EA traders encounter is set out in our comparison of ASIC, FCA and CySEC broker regulation.

What segregation does not protect against

Segregation does not protect against trading losses. If your positions lose money, the loss is yours, and the fact that the money was held in a segregated account does not change that.

It does not secure the return of every cent if the broker fails. A client money pool can come up short — money in transit, operational mistakes, or funds held with a bank that itself fails are all reasons a shortfall can arise. Segregation is a ring-fencing mechanism, not a promise of outcomes. The distinction is worth holding onto when reading marketing material: a broker can truthfully describe its client money arrangements as segregated while trading losses and insolvency mechanics remain exactly what they are. Segregation changes the custody of the money; it does not change the risk profile of the account it is held in. That distinction is why our vetted broker comparison starts from which legal entity holds your money, not from whether a broker calls its accounts segregated.

Segregation, compensation schemes and insurance are different things

Segregation, compensation schemes and private insurance are three different layers, and they are often confused. Segregation is the ring-fencing described above. A compensation scheme is a statutory or industry-backed arrangement that can pay out to clients when a firm fails; schemes differ by jurisdiction and by coverage, and the limit and terms are set by the scheme, not by the broker. Private insurance is a commercial contract with an insurer covering whatever the policy wording covers.

The three layers answer different questions. Segregation asks where the money sits; a compensation scheme asks what happens if the firm fails; insurance asks what a private contract promises. It is worth knowing which of the three, if any, applies to your account. The table below sets out the three layers side by side. Knowing which layers apply is part of how to choose a broker for automated trading.

How to check how your broker holds client money

Ask the broker for its client money policy and its aggregate client money disclosure, which most regulated firms publish or provide on request. Then check the entity itself against your own regulator’s register: the same register you would use to confirm a firm is authorised will usually also show the client money rules that entity operates under.

Check where the funds are held. Client money should sit with banks that the applicable rules permit, and the disclosure usually names the type of institution. Finally, read the account agreement for the client money wording — the promise that matters is the one attached to the entity that books your account, wherever you live. If a broker cannot point to a client money policy, or is unclear about which entity books the account, treat that as an item to resolve before funding rather than after. The paperwork should name the rules, the regulator and the institutions that hold the funds; anything vaguer than that deserves a question in writing, and the answer should survive a second reading. The Broker & VPS Quick Reference in our free trader toolkit lists the client money questions to ask before funding.

FAQs

Is segregated money safe if the broker goes bust?

Segregation improves the likelihood that client money is returned, because the pool is not part of the broker’s estate. It does not make return automatic or full: shortfalls, delays and the practical mechanics of an insolvency process all apply.

Does segregation protect against trading losses?

No. Segregation concerns where client money is held, not whether positions make or lose money. Trading losses are the trader’s own, and they reduce the balance inside the segregated pool like any other loss.

Are compensation schemes the same everywhere?

No. Schemes differ by jurisdiction — who operates them, what types of firm and account are covered, and the limits and conditions attached. There is no single global scheme, and coverage is set by the scheme in the country of the entity.

Can a broker use segregated funds for its own hedging?

No. Using client money for the broker’s own purposes is exactly what segregation rules prohibit. The rules restrict how the client pool may be used, and the documentation for the entity should state that restriction.

Trading foreign exchange and CFDs on margin carries a high level of risk and may not be suitable for all investors. This article is for educational purposes only and does not constitute financial advice.