Trust & Safety
What Happens to Your Money If Your Broker Goes Bust?
With a tier-1-regulated broker, your money is held in segregated client accounts kept separate from the firm’s own funds, so an administrator returns it to you if the broker fails; if there’s a shortfall, a compensation scheme may top it up — up to £85,000 under the UK’s FSCS (investment protection) or €20,000 under the EU/Cyprus ICF. With an offshore entity you may have neither reliable segregation nor any scheme. Which entity your account sits under decides everything.
Two very different outcomes
When a broker becomes insolvent, one of two stories plays out. In the good version, your funds were ring-fenced from the company’s money, an insolvency practitioner identifies them as yours, and you get them back — with a compensation scheme covering a genuine shortfall up to a limit. In the bad version, your money was commingled with the firm’s, there’s no scheme behind it, and you become an unsecured creditor waiting in line. The difference between the two is almost entirely down to how, and where, your broker is regulated.
Segregated client funds: the first protection
Tier-1 regulators require brokers to hold retail client money in segregated accounts, separate from the firm’s operating capital, often at a separate bank. The point is legal as much as practical: segregated money is identifiably yours, not the company’s, so it shouldn’t be available to the firm’s general creditors in a wind-up. Segregation is the mechanism that makes “you get your money back” the default rather than the exception — and it’s a requirement you only reliably get from a strong regulator.
Compensation schemes: the backstop for a shortfall
Segregation can still fail — through fraud, sloppy record-keeping or a bank failure — and that’s what a compensation scheme is for. The two most relevant to retail forex/CFD traders:
FSCS (United Kingdom). If an FCA-authorised firm fails and cannot return client money, the Financial Services Compensation Scheme covers eligible claims under its investment protection, up to £85,000 per person, per firm. (Note: the UK raised the separate bank deposit limit, but broker/CFD accounts fall under the investment limit, which remains £85,000.)
ICF (Cyprus / EU). For CySEC-regulated firms, the Investor Compensation Fund covers eligible clients up to €20,000 if the firm fails and cannot meet its obligations.
Australia and elsewhere. ASIC requires segregated funds and negative-balance protection for retail clients, but there is no broad retail compensation scheme equivalent to the FSCS — so with an ASIC broker, segregation is doing the heavy lifting. Offshore jurisdictions typically offer neither a scheme nor dependable segregation.
Negative-balance protection: you can’t owe more than you put in
A separate but related protection. Under FCA and ESMA rules (and ASIC’s retail product intervention), retail clients get negative-balance protection: if a violent market move blows through your stop, the broker — not you — absorbs any balance below zero. It’s the reason a single gap can’t leave a retail trader owing the broker money. It generally applies to retail, not professional, clients — another reason the classification of your account matters.
The detail that overrides all of the above: your entity
Large brokers run multiple legal entities — a UK/FCA entity, an EU/CySEC entity, an Australian/ASIC entity, an offshore entity — and enrol you into whichever your country allows. Only the entity named in your account agreement determines your protection. A broker can advertise an impressive tier-1 licence while your account sits under an offshore arm with no segregation guarantee and no scheme. Before you deposit, read the entity in the agreement and confirm it in the register — exactly the process in how to verify a broker’s licence.
Prop firms are a different question entirely
None of this maps onto prop firms. With a funded-trader account you’re trading the firm’s simulated capital under a contract, so there’s no client money to segregate and no compensation scheme — the fee you paid is simply at risk if the firm fails. That’s why prop-firm due diligence looks completely different: see how to tell if a prop firm is legit and our closures tracker.
How we weight this
Regulation and fund safety is the single heaviest factor in our broker scoring — ahead of cost and platform — and every licence is verified in the official register before a broker is rated. See the full methodology.
FAQ
Is my money 100% safe with a regulated broker? Safer, not risk-free. Segregation and schemes protect against the broker failing or misusing funds; they don’t protect against market losses, and compensation is capped (£85,000 / €20,000). Above the cap, you rely on segregation and the administration.
Does the FSCS cover my trading losses? No. It covers money the failed firm can’t return — not losses from your own trades. Losing positions are market risk, which no scheme insures.
How do I find out which entity holds my account? It’s named in your client/account agreement and usually in the site footer by region. Match that exact entity in the regulator’s register; don’t rely on the brand name or the logos alone.