What segregated client funds actually means

Segregation means qualifying client money is kept apart from the broker's own operating funds. Client deposits go into designated client accounts; the money the firm uses to pay salaries, rent and marketing sits somewhere else.

The point is what happens if the firm fails. Properly protected client money can be dealt with separately from the assets available to ordinary corporate creditors, rather than being pooled with everything else and fought over.

That is a genuine and important protection. It is also narrower than the marketing implies, and the gap between the two is worth understanding before you fund an account.

What our hundred brokers actually say

These four figures are the article. Segregation is close to universal; the things people assume come with it are not.

• 89say client money is segregatedPlus a further handful qualifying it by entity or jurisdiction. It is close to standard.
• 98name a bankBut most of those names are 'top-tier banks' or 'regulated banking institutions' rather than an institution you could look up.
• 22have no investor compensation schemeEighteen say so explicitly; four record none. This is the number that matters and nobody advertises it.
• 1names its auditorNinety-eight report being audited. One, FxPro, records who by.

Segregation is nearly universal, so it barely distinguishes one broker from another. Compensation cover distinguishes them enormously, and it is far less prominently displayed.

Your money is not in an account with your name on it

Segregated does not mean individually held. A broker with fifty thousand clients does not open fifty thousand bank accounts. It runs pooled - or omnibus - client accounts, and keeps its own internal ledger of who is owed what.

So the balance on your platform is not a window onto a bank account containing your money. It is the broker's record of your entitlement within a much larger pool.

This is normal, it is how the industry works, and it makes one thing critically important: the accuracy of the broker's records. If the ledger and the pool disagree, that discrepancy is a shortfall, and working out whose money is missing is exactly the problem an insolvency practitioner inherits.

Three protections, regularly confused

These get used interchangeably in broker marketing. They cover different things and only one of them is a promise to give you money.

A broker can have the first without the second. Twenty-two in our records do exactly that.

Segregation decides where your money sits. Compensation decides whether you get it back if it is not there.

Why segregated money still takes time

A broker fails on a Tuesday with properly segregated funds and accurate records. This is the good case, and it is still not fast.

1. Day one

   Trading

   Suspended

   Withdrawals

   Frozen

   Your platform balance

   $25,000

   The number on your screen is a claim, not a cheque. Nothing can be paid out until it is verified.

2. Reconciliation

   What the ledger says clients are owed

   Being totalled

   What is actually in the client accounts

   Being counted

   Open positions

   Valued or closed to fix each client's final figure

   Paying anyone early risks paying them more than their share while somebody else gets less. So nobody is paid early.

3. The two possible answers

   If the two figures match

   Client money is distributed

   If they do not

   There is a shortfall, and everyone takes a proportional cut

   Timescale

   Months, or years in a complex case

   A shortfall can then be topped up by a compensation scheme. If the entity you dealt with belongs to one.

This is why 'my funds are segregated' is not the same as 'my funds are available'. Both can be true and you still cannot pay your rent with them this month.

The entity is the thing, not the brand

A broker group can run a UK company, an EU company, an Australian company and an international one, all under one logo, one website and one login page.

Those are separate legal entities with different regulators, different client money rules and different compensation cover. The UK entity might sit inside a scheme paying eligible clients up to £85,000; the international entity might sit inside nothing at all.

Which one you signed with is written in your client agreement, and it is the single most important sentence in it. The broker licence check covers how to establish this properly.

Questions worth putting to a broker

Ask these in writing before a significant deposit. A firm that cannot answer clearly about its own structure has told you something.

• Which legal entity will hold my account, and where is it incorporated?
• Which regulator supervises that specific entity?
• Is my money treated as client money and held in segregated accounts under that entity's rules?
• Which banks hold it: an actual name, not a category?
• Is there an investor compensation scheme covering me, and what is the limit?
• Does my client classification change any of the above?

Common questions