What segregated client funds are
Segregated client funds are deposits that a broker holds in bank accounts kept apart from its own operating money. The broker's money pays salaries, rent and suppliers. Client money is held for clients only.
In forex and CFD trading, "segregated accounts" usually means designated client bank accounts. Depending on the jurisdiction they may be called trust accounts or client money accounts. Where the rules are strict, the bank is told in writing that the money belongs to clients and not to the broker.
How segregation works in practice
Where a regulator requires segregation, the rules usually cover:
- Separate accounts. Client money goes into accounts named as client accounts, not mixed with company funds.
- Reconciliation. The broker regularly compares what it owes each client with what sits in the client accounts. It must fill any gap from its own money.
- Restricted use. The broker may not use client money to pay its own debts, fund its own trading or pledge it as security.
- Audits and reporting. External auditors and the regulator check client money records.
How strict each of these is depends on the regulator that licenses the specific company you have your account with. Large broker groups often run several companies under different licences. Your protection depends on the company named in your client agreement, not the brand. See What Regulation Protects and Offshore vs Onshore.
What segregation protects against
Segregation is meant to keep client money out of the broker's own estate. If the company fails, its creditors, such as lenders and suppliers, should not be able to claim money held for clients. It also makes it harder for staff to spend client deposits on running the business.
Limits of segregation in insolvency
Segregation reduces risk. It does not guarantee you get every rupee or dollar back.
- Shortfalls. If the broker broke the rules, made reconciliation errors or committed fraud, the client account may hold less than it owes. Clients then usually share what is left in proportion to their claims.
- Costs of the process. In some jurisdictions the administrator's costs of returning client money can be paid from the client money pool.
- Delays. Insolvency takes time. Your money can be frozen while claims are checked.
- Bank failure. Segregation protects you from the broker's failure, not from a failure of the bank holding the client account.
- Money not in the client account. Funds passed to liquidity providers, payment processors or other group companies may sit outside the segregated pool.
- Open positions. Positions are usually closed during insolvency, and their value at that time may differ from what you expected.
- Trading losses. Segregation never protects you from losses on your own trades. Leveraged CFD and forex trading can lose money fast, including your whole deposit.
A compensation scheme, where one exists, is a separate layer that may pay eligible clients when segregation falls short. Coverage and eligibility differ widely. See Compensation Schemes.
Why the regulator matters
Segregation rules are only as strong as the supervision and enforcement behind them. A rule written in a client agreement means little if no authority checks it or can act on it.
To check which regulator licenses a firm and whether it covers your account, use the official registers. Our guides explain each one and link to the official register:
- FCA Register (United Kingdom)
- CySEC Register (Cyprus)
- FSCA Register (South Africa)
- FSA Seychelles Register
- FSC Mauritius Register
- CMA Kenya Register
- Other Regulator Registers
For a step-by-step method, see Verify a Broker and the Broker Checklist.
The position in Pakistan
In Pakistan the supervisor is the Securities and Exchange Commission of Pakistan (SECP), with trading in listed securities and commodities only via SECP-licensed securities and futures brokers. Also, per the SECP, lists of licensed brokers are on the PSX and PMEX websites.
On offshore platforms, per the SECP, offshore forex/CFD platforms operate without regulatory approval in Pakistan, and per the SECP, offshore platforms have no Pakistani licence or oversight and offer no legal protection or recourse. Segregation rules from a foreign regulator do not change this. A Pakistani client would have to rely on a foreign process, in a foreign court or scheme, if anything went wrong.
On payments: per the SBP, remitting foreign exchange to overseas forex/margin/CFD platforms is not allowed through any payment channel (FERA s.5(1)). In addition, per the SBP, the purchase of offshore forex/margin/CFD products by Pakistani residents violates section 4(1) of FERA 1947. Read Law and regulators before you make any decision.
How to check a broker's client money terms
- Find the legal company name in your client agreement.
- Confirm that company on the official register of its regulator.
- Read the client money section: which bank, which type of account, and whether segregation applies to your account type.
- Check whether a compensation scheme covers you as a client of that company.
- Watch for warning signs such as pressure to deposit or requests to pay into personal accounts. See Scam Warning Signs.
Frequent questions
Are broker funds safe if they are segregated?
Safer, not guaranteed. Segregation keeps client money out of the broker's estate, but shortfalls, fraud, bank failure and delays can still cause losses.
Does segregation protect me from trading losses?
No. It only concerns money held for you. Losses from your own trades are yours, and leveraged trading can lose money fast.
What is the difference between segregation and a compensation scheme?
Segregation is how the broker holds your money. A compensation scheme may pay eligible clients if the broker fails and the client money is not enough.
Do offshore brokers segregate client funds?
Some say they do. How well it is enforced depends on the regulator. The SECP states that offshore platforms offer Pakistani clients no local legal protection.
Where do I report a suspected problem?
See Report a Scam and File a Broker Complaint.