Segregated client funds
Also known as: segregated accounts, client money segregation, client money
Segregated client funds: Segregated client funds are client money that a broker holds in accounts kept separate from its own operating money, so that it is identified as belonging to clients rather than to the firm.
What does segregation of client funds do?
Segregation is designed to keep client money from being used for the broker’s own expenses and to make it easier to identify and return client money if the firm fails. Whether segregation is required, and how it is supervised, depends on the regulator and the legal entity that holds the account: how to choose a forex broker.
What does segregation not protect against?
Segregation does not protect against trading losses, and it is not the same as a compensation scheme. If a firm fails, returning client money can take time, and any shortfall is handled under the rules of the relevant country, which may or may not include an investor compensation scheme.
Worked example
Illustrative only: a client deposits $2,000 with a broker. The broker holds the $2,000 in a client money account at a bank, separate from the account it uses to pay salaries and rent. The client’s trades change the balance; the broker’s own expenses do not.