Segregated Client Accounts: How Your Deposit Is Kept Apart

A segregated client account is a bank account that holds client deposits separately from a broker's own money, so those funds should not be used to pay the firm's bills or its creditors if it fails. Segregation is one of the most important protections in retail trading, and it is widely misunderstood. This guide explains how it works day to day, what happens in an insolvency with worked numbers, and what it does not cover.

What Is a Segregated Client Account?

A segregated client account is a bank account in the broker's name that is designated for client money and kept apart from the company's operating funds. The money remains legally earmarked for clients, which is intended to keep it out of reach of the broker's other creditors if the business becomes insolvent.

Wikipedia's article on security segregation traces the idea to brokerage failures in the late 1960s, which led to rules such as US Rule 15c3-3 requiring customer assets to be held apart from a firm's own. When you fund a forex trading account, the same principle decides whether your deposit sits in the firm's general funds or in a protected pool.

Segregated does not mean your money sits in a private account with your name on it. Client deposits are usually pooled together in an omnibus account, and the broker's internal records show how much of that pool belongs to each client, which makes the accuracy of those records very important.

How Segregated Accounts Work Day to Day

Segregated accounts work by routing client deposits into designated bank accounts, recording each client's entitlement in the broker's ledger and regularly reconciling the two. Where the rules are strict, a firm must compare the money it holds with the money it owes clients every business day and correct any difference promptly.

The UK Financial Conduct Authority (FCA) sets out these requirements in the Client Assets sourcebook, known as CASS. Firms must carry out an internal client money reconciliation each business day, which is why a client money breach at a UK firm tends to come to light quickly. Under the UK rules, client money is held on trust and the firm must keep the bank acknowledgement letters that confirm the account's status.

Moving money is where the details matter. Your margin is not necessarily sitting still, because a broker hedging client positions may have to post collateral with a liquidity provider. In some regimes that requires taking client money out of the account for a permitted purpose, while others forbid it, so the same word segregated can describe quite different arrangements.

Fees, losses and commissions pass the other way. Once a charge is due or a loss is realised, the amount stops being client money and may be moved to the firm's own account, and the daily reconciliation exists to keep that movement accurate.

Segregated vs Commingled Client Funds

Segregated funds are held apart from a broker's corporate money, while commingled funds are mixed with it, and the difference decides where you stand in an insolvency. Commingled money generally forms part of the company's assets, so clients may be ordinary unsecured creditors queueing behind others for whatever remains after the firm collapses.

What Happens to Segregated Money if a Broker Goes Bankrupt?

If a broker goes bankrupt, an insolvency practitioner takes control, open positions are closed, and the segregated money is reconciled against client records before being returned. In a clean case most of the pool goes back to clients, but distribution can take months, and any shortfall is normally shared across the client pool.

Under UK rules the firm's failure is a primary pooling event, at which point client money held in client bank accounts is notionally treated as one pool. Your claim is based on your entitlement at that moment, including the value of positions as they are closed out, so a floating profit shown on the platform may not be the sum eventually recognised.

Worked Example: A Shortfall in the Client Pool

Segregation protects against the firm's creditors, but it cannot create money that is missing. Suppose a failed broker owes its clients $20 million in total and only $16 million is found in the client accounts, because of poor records or misuse. The pool covers 80% of what is owed, and the example assumes a further 2% of each claim is absorbed by the costs of distribution.

A compensation scheme, where one exists, can then fill some of the gap. The UK Financial Services Compensation Scheme pays up to £85,000 per person per firm for eligible claims against an authorised firm that has failed. Where there is no scheme, the shortfall in the table is simply lost unless the insolvency practitioner recovers more from other sources.

Why Your Platform Balance May Differ From Your Claim

The figure on your screen on the day a broker fails is not automatically the figure you can claim. Take a $10,000 balance with a $1,200 floating profit, so equity reads $11,200. If the positions are closed out at a later and less favourable price, the recognised profit might be only $900, making the claim $10,900 before any shortfall is applied. Keep regular statements, because they are your evidence when entitlements are being worked out.

The MF Global Example

MF Global, a large futures broker that collapsed in 2011, is the standard case of segregated money going missing. The shortfall was put at about $1.6 billion, affecting roughly 38,000 customers, after the firm used customer funds for its own purposes during its final crisis. A court order in 2013 and the work of the trustee eventually brought customers back to full repayment, but it took about two years.

What Segregated Accounts Do Not Protect

Segregated accounts do not protect you against trading losses, a broker that breaks the rules, the failure of the bank holding the money, or arrangements that transfer ownership of your funds to the firm. Segregation deals with one specific risk, which is the claims of the broker's other creditors after it fails.

Trading Losses and Leverage

Money lost in the market leaves the protected pool the moment the loss is realised. No form of segregation helps with a stop-out, and leveraged positions can lose a whole deposit within minutes. Treat the rule as protection against the firm rather than against the market.

Misuse and Poor Records

A rule only works if it is followed. A broker in financial trouble might move client money to cover its own needs, and a weak regulator may not discover this until the firm has already gone. When that happens, clients share the gap even under a sound legal framework.

Failure of the Bank Holding the Money

Client money is exposed to the bank where it is held, and a bank failure could reduce the pool even if the broker is entirely honest. Many of the best forex brokers spread client money across several institutions for that reason. Ask which banks are used, because a claim of top-tier banks means little without names.

Title Transfer Arrangements

Under a title transfer collateral arrangement, ownership of the money passes to the firm, and it stops being client money at all. EU and UK rules do not allow this with retail clients, but professional clients may be asked to agree to it. Traders who opt up to professional status for higher leverage should check whether that clause appears in the new terms.

Client Money Rules by Regulator

Client money rules vary widely by regulator, with the UK and Australia setting out detailed requirements and offshore jurisdictions often leaving much to the firm. Australian law, for example, has prohibited brokers from using retail client money for their own hedging or working capital since 4 April 2018.

The US entry surprises many people. Commentary on US retail forex has long noted that these accounts do not enjoy the segregated status given to futures customers, so check the current risk disclosure statement if you trade with a US dealer. Regulations change, so treat the table as a starting point and read the actual terms for your entity.

How to Check Whether Your Broker Segregates Funds

To check whether your broker segregates funds, read the client money section of the client agreement, confirm which entity and regulator apply, and ask which banks hold the money and how often it is reconciled. A marketing line saying your funds are safe is only a claim, while a written, specific answer can be examined.

1. Find the client money clause in the client agreement for your specific entity.

2. Confirm that the agreement describes separate client accounts and not simply safe custody.

3. Ask for the names of the banks holding client funds.

4. Ask how often client money is reconciled and whether it is independently audited.

5. Ask whether client money can be passed to liquidity providers or used for hedging.

6. Check whether you have signed any title transfer clause or professional client terms.

7. Look up the regulator's client money rules for that licence type.

A well-run firm can usually describe its client money arrangements in detail and answer these questions directly. A broker that avoids naming its banks or sends a generic reassurance has given you useful information. Reasonable firms may decline to share every commercial detail, but the structure itself should be open to inspection.

Tradin's page on deposits and instant withdrawals says client funds are held in separate accounts isolated from company operations. Questions like those above apply to that statement exactly as they do to any other broker's, so put them to support and keep the written answers with your account records.

Limit Your Exposure Whatever the Answer

Good answers reduce risk without eliminating it, so keep only the money you need for margin at any broker. Consider a trader who needs about $1,500 of margin and a suitable buffer: holding $3,000 at the broker instead of $20,000 leaves $17,000 outside any insolvency process. Withdraw profits regularly for the same reason.

Segregated Account Questions Traders Ask Next

Traders checking client money rules usually ask next whether segregated funds are guaranteed, whether they earn interest, how long repayment takes after a failure and whether a segregated account is different from a compensation scheme. Each answer depends on the regulator supervising the firm and on the wording of your client agreement.

Are Segregated Funds Guaranteed?

Segregated funds are not guaranteed. Segregation separates the money and improves your position in a failure, but a shortfall caused by misconduct, bank failure or insolvency costs can still reduce what you receive. Only a compensation scheme offers a defined payment, and only up to its limit.

What Is the Difference Between Segregation and Compensation?

Segregation is the first line of defence and keeps client money apart while the firm is operating. Compensation is the backstop, paying eligible clients when money is still missing after a firm has failed. A broker can offer the first without the second, so ask about both.

Is Money Used as Margin Still Segregated?

Money used as margin normally stays client money in your account's records, but where it physically sits depends on how the broker manages its positions. Some regimes allow part of it to be posted to a hedging counterparty, and Australia has prohibited that for retail client money since 2018. Ask your broker directly how margin is treated.

How Long Does It Take to Get Money Back After a Broker Fails?

Repayment after a broker fails usually takes months and can stretch into years for complicated cases. MF Global customers waited around two years for full repayment. Accounts must first be reconciled and positions valued, and claims have to be submitted before any distribution can begin.

Do Segregated Accounts Earn Interest for Clients?

Most retail brokers do not pay clients interest on segregated balances, and the client agreement will usually state who keeps it. The rules for holding client money do not by themselves entitle you to any interest earned on it, so idle balances are better kept elsewhere.

Read the Client Money Clause Before You Fund

Segregation is valuable, but only as far as the rules behind it and the firm's compliance with them. Read the client money clause, confirm the banks and the entity in writing, and keep no more at any broker than your trading actually requires.