What segregated client funds actually meansEighty-nine of our hundred brokers say client money is segregated. Twenty-two of them sit behind no compensation scheme at all. Those are answers to different questions, and only one of them pays you back.What happens if your broker goes bankrupt
Your money is not with a brand. It is with one specific company, in one specific country, under one specific set of rules - and which one decides almost everything about what you get back.
Brokers are businesses. They fail for the reasons businesses fail: bad risk management, a market event that moves further than their models allowed for, a counterparty collapsing, losing banking relationships, fraud, or simply running out of capital.
Regulation makes it less likely and does not make it impossible. Several well-known, properly licensed brokers have gone under, and clients of the good ones still waited a long time for their money.
What actually happens, in order
There is no universal sequence, but insolvencies tend to run roughly like this. The important thing is how early trading stops relative to how late money moves.
Trading and withdrawals stop
Usually before any formal announcement, and often before clients understand why. Deposits may still be accepted for a short period, which is one reason to stop funding an account the moment withdrawals become unreliable.
An insolvency practitioner is appointed
An administrator, liquidator or trustee depending on the jurisdiction. Control passes from the firm's management to them, and they answer to the court and the regulator rather than to the company.
Open positions are dealt with
Closed, frozen, valued at a set point, or in rare cases transferred to another firm. You almost certainly cannot manage them yourself. The price used is set by the contract terms and the available market, not by where the platform last showed them.
Client accounts are reconciled
The ledger of what clients are owed is compared with the client money actually held. This is the slow part, and its outcome decides everything that follows.
The claims process opens
Clients are asked to submit claims by a deadline, supported by their own records. Broker systems may be offline by this point, which is why you should keep statements yourself.
Distribution, and any compensation
Available client money is returned, proportionally if there is a shortfall. Where an entity belongs to a compensation scheme and you are eligible, that may cover some of the gap up to its limit.
A shortfall, worked through
Client money was segregated and the records were broadly accurate, but the pool is short. This is the ordinary bad case rather than the catastrophic one.
A $10,000 account in a 10% shortfall
- Total client claims$100 million
- Client money available$90 million
- Recovery ratio$90m ÷ $100m90%
- Your recognised claim$10,000
- Distribution from the client pool$10,000 × 90%$9,000
Remaining gap$1,000Which a compensation scheme may cover if your entity belongs to one and you are eligible. If it does not, as with 22 of our hundred brokers, that $1,000 depends on whatever else the estate can recover.
How much you can actually find out beforehand
Assessing a broker's financial strength is only possible when it publishes something. For most of the market, it does not.
- 10of 100 are publicly listedPlus500, eToro, CMC, IG, Swissquote, Charles Schwab, XTB, Webull, Fineco and Interactive Brokers publish audited accounts anyone can read.
- 90are notRegulators still require financial reporting. You just cannot see it.
- 1971 → 2026range of founding yearsCharles Schwab is the oldest in our records; the newest opened this year. Median founding year is 2010.
A long history is not a guarantee: old firms fail too. It does mean there is a longer record of how the firm has behaved, which is more than can be said for a brand that appeared last year.
What your claim is actually for
Not what you deposited. Your claim is your account value once positions are settled, which cuts both ways.
Deposit $10,000 and make $2,000 trading, and your claim is around $12,000 - profits are not excluded because they exceed your deposit. Deposit $10,000 and lose $4,000, and your claim is around $6,000. Insolvency does not reverse trades that went against you.
Open positions complicate this, because they have to be valued or closed before any final figure exists. The equity shown on your screen the day before the firm collapsed is not necessarily the number that ends up on the claim form.
Broker failure and trading loss are two different risks, and only one of them is priced into anybody's strategy.
Things that do not prevent insolvency
Each of these is regularly offered as reassurance. None of them is protection.
| The reassurance | The reality |
|---|---|
| "It's a big broker" | Scale brings capital and diversified revenue. Large financial firms have failed repeatedly. |
| "It's publicly listed" | Listing brings disclosure, which genuinely helps you assess it. Public companies still go bankrupt. |
| "It's an ECN broker, it doesn't take the other side" | Execution model and solvency are only loosely related. An agency broker still faces counterparty, banking and operational risk. |
| "It's regulated" | Regulation improves oversight, client money rules and claims procedures. It does not underwrite the business. |
| "Funds are segregated" | Protects client money from corporate creditors. Says nothing about whether the firm survives or how long recovery takes. |
Spreading the risk, and what it costs
Some traders hold capital at more than one broker. Two accounts of $50,000 rather than one of $100,000 means a failure freezes half your capital rather than all of it, and leaves you able to keep trading while a claims process runs for a year.
It is not free. More accounts mean more identity checks, more tax records, fragmented margin and more administration. And it does nothing whatever about market risk - the same position split across two brokers is still the same position.
Whether the trade-off is worth it depends mostly on how much money is involved.
Before a significant deposit
Six questions. If you can only answer three, the deposit is larger than your information.
- Which legal entity is named in my client agreement?
- Which regulator supervises that entity, and is the licence current?
- Is client money segregated under that entity's rules?
- Is there a compensation scheme covering me, and what is the limit?
- Is the company publicly listed, and if so have I looked at its accounts?
- Am I comfortable with this much capital being inaccessible for a year if the worst happens?
Common questions
Do I lose everything if my broker goes bankrupt?
Not necessarily. Properly segregated client money is generally dealt with separately from corporate assets. Recovery depends on whether there is a shortfall and whether compensation applies.
How long does it take?
Months in a straightforward case. Years where records are poor, fraud is involved or multiple jurisdictions are in play.
What happens to my open positions?
They are typically closed or valued at a point set by the contract terms. You should not expect to keep managing them.
Does insolvency reverse my trading losses?
No. Legitimate losses stand. Your claim is your account value, not your total deposits.
Is every regulated broker covered by a compensation scheme?
No, and this is the most common false assumption. Twenty-two of our hundred records have no statutory compensation scheme at all.
Does my broker's UK protection cover me if I signed with its international arm?
No. Protections attach to the entity you contracted with, not to the group or the brand.
Can one company in a group fail while others keep trading?
Yes. They are separate legal entities and are treated separately in insolvency.
Does a parent company have to rescue a failed subsidiary?
Not unless it has given a specific guarantee. Shared ownership does not create an obligation.
Should I pay a fee to recover my balance?
No. Insolvency practitioners do not cold-call asking for upfront payments to release funds. Anyone who does is running the recovery scam described in broker scams.
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Nothing here is financial advice. Leveraged products can lose more than they make.
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