What segregated client funds do and do not protect

[Amanhasnoname]

Segregation means a broker keeps client money in accounts separate from its own operating funds. If the broker fails, those funds should not be used to pay its creditors. It is a valuable protection but not an absolute guarantee.

Weaknesses include the quality of the bank holding the funds, the legal framework of the jurisdiction, and the possibility of errors or misuse. In an insolvency, recovery can be slow and may involve costs.

Compensation schemes in some regions provide a limited amount per client if the firm cannot return funds. The limits and conditions differ, and many offshore brokers have no such scheme.

Also check what is not covered: profits on open positions, funds on bonus or credit, and losses from trading itself.

A practical measure is to limit exposure. Hold only the necessary margin, withdraw profits, and spread capital across more than one reputable broker if the amounts are large.

Understanding what protection actually exists helps size the risk of the counterparty.

How much capital is exposed to broker risk at any given time, and is that level deliberate?