Segregated Accounts

A segregated account is a bank account in which a broker holds client deposits entirely separate from its own corporate operating funds. Client money is ring-fenced, so it cannot legally be used to cover the broker's payroll, rent, marketing, or debts, and it is protected if the broker fails.

The practice exists because a retail trader's balance is not a loan to the broker; it is the client's own money held on trust. Regulators codify this. Under the UK Financial Conduct Authority's CASS 7 rules, a firm must keep client money in a designated client bank account at an approved credit institution and reconcile it daily. CySEC, ASIC, and ESMA-aligned regimes impose equivalent duties across the EU, Cyprus, and Australia.

In practice a broker regulated in a tier-1 jurisdiction will deposit client funds with banks such as Barclays, Lloyds, or National Australia Bank, run an internal client-money reconciliation every business day, and commission periodic CASS audits. If the broker becomes insolvent, an administrator returns the segregated pool to clients ahead of the broker's general creditors, and a compensation scheme such as the UK's FSCS (up to GBP 85,000) or the Cyprus ICF (up to EUR 20,000) may top up any shortfall.

Segregation is not the same as insurance, and it is not the same as a guarantee. It reduces counterparty risk; it does not remove market risk, operational fraud, or the shortfall that can occur if reconciliations were falsified. That distinction is exactly what a compliant partner must communicate.

When a trader deposits, the money is routed into the broker's client bank account rather than its house account. The broker's ledger tracks each client's individual entitlement, but the cash itself sits commingled in the pooled client account, legally owned by the clients collectively.

Each business day the broker performs an internal client-money reconciliation: it compares the total it owes clients against the balance actually held in segregated bank accounts and any margin posted at liquidity providers. Any shortfall must be topped up from house funds by the next day. External auditors periodically test these reconciliations and issue a CASS (or equivalent) assurance report to the regulator.

Because the money is held on trust, it falls outside the broker's estate in an insolvency. An administrator distributes the client-money pool back to clients on a pro-rata basis before ordinary creditors are paid.