Segregated Funds

What are segregated funds?

Segregated funds are client deposits that a broker holds in dedicated bank accounts entirely separate from its own operating capital. In practice, this means a broker cannot use client deposits to pay its own expenses, cover its trading losses, or fund business operations — that money legally and practically belongs to clients, not the firm.

Most reputable financial regulators require licensed brokers to segregate client funds as a core condition of authorization, treating it as a baseline safeguard rather than an optional extra.

Why segregation matters for traders

Segregation is specifically designed to address one scenario: what happens to your deposited funds if the broker itself runs into financial trouble or becomes insolvent. Without segregation, client money could be treated as a general company asset and become entangled in creditor claims during insolvency proceedings — potentially leaving depositors waiting in line alongside other creditors, or losing money outright.

With genuine segregation in place, client funds are meant to be identifiable and returnable to clients even if the broker itself fails, independent of the company’s other liabilities. This is one reason regulatory status matters so much when choosing a broker — it’s very difficult for a retail trader to verify fund segregation independently, so you’re largely relying on the regulator enforcing the rule.

Segregation is usually paired with, but distinct from, an investor compensation scheme, which provides a further backstop (up to a capped amount) if segregation somehow fails to fully protect a client’s funds. Together, these protections form the backbone of what’s broadly called client money protection.

Quick recap

• Segregated funds are client deposits held apart from a broker’s own operating money.
• The goal is to protect client deposits if the broker becomes insolvent.
• Segregation is typically a regulatory requirement, not a voluntary broker policy, and is reinforced by investor compensation schemes as a further layer of protection.