Segregated Funds and Investor Compensation Explained
Segregation means the broker keeps client money in accounts separate from its own, so it shouldn't be used for the firm's expenses or reachable by its creditors. Compensation schemes pay you if a regulated firm fails and money is missing: up to £85,000 in the UK (FSCS) and up to €20,000 in Cyprus (ICF). Offshore brokers may segregate funds, but we found no comparable compensation scheme at the offshore regulators we checked.
Two layers of protection
1. Segregation. Client money is held in separate bank accounts, often designated as client accounts. If the broker becomes insolvent, those funds should be returned to clients rather than paid to the firm’s creditors.
2. Compensation. If a firm fails and client money or assets are missing, a scheme pays eligible clients up to a limit.
Segregation is the first line; compensation is what’s left when segregation fails.
Compensation limits from official sources
| Scheme | Limit | Source |
|---|---|---|
| UK FSCS | Up to £85,000 per eligible person, per firm (firms failing from 1 April 2019) | FSCS |
| Cyprus Investor Compensation Fund | The lower of 90% of covered claims or €20,000 | CySEC ICF |
| Offshore regulators (Seychelles, Mauritius, Belize, Vanuatu) | We found no forex client compensation scheme on their sites | — |
Neither scheme covers trading losses. The FSCS says it can’t accept claims for poor investment performance. CySEC’s fund covers a member’s failure to repay funds owed to, or held for, clients.
Worked example
You have $15,000 with a broker that fails, and $6,000 of client money is missing.
- Cyprus-licensed company: your claim is the shortfall; the ICF pays the lower of 90% of the covered claim or €20,000.
- Offshore company: you’re a creditor in the liquidation. Recovery depends on what’s left and can take years.
What happens step by step is in what happens if a broker goes bust.
How to check what applies to you
- Find the company named in your client agreement (licences by tier).
- Look it up on the regulator’s register (scam-check guide).
- Read the broker’s client money or safety page for its segregation policy. Broker-specific: XM safety, Titan FX safety.
Practical rules for offshore accounts
- Keep only trading capital with the broker; withdraw profits regularly.
- Prefer brokers whose licence and company you can verify. See safest offshore brokers.
- Treat negative balance protection as a separate protection: it limits losses, not insolvency risk.
Safest Offshore Forex Brokers 2026
| Broker | Licence | Visit broker | |||
|---|---|---|---|---|---|
 XMFeatured | 4.9/5Editorial rating | FSC Belize | ✓ | 1,000:1 | Visit |
 Vantage | 4.3/5 | FSCA South Africa 51268 | ✓ | Unlimited | Visit |
 Exness | 4.2/5 | FSA Seychelles SD025, CBCS Curaçao, FSC BVI, FSC Belize, F… | ✓ | 2,000:1 | Visit |
 HFM | 4.1/5 | CySEC 183/12, FCA 801701, FSCA 46632, FSA SD015, CMA 155 | ✓ | 2,000:1 | Visit |
 XS.com | 4.1/5 | FSA Seychelles SD089 | ✓ | 2,000:1 | Visit |
 FXGT | 4.1/5 | FSA Seychelles SD019 | ✓ | 5,000:1 | Visit |
 Titan FX | 3.7/5 | Vanuatu FSC | ✓ | 2,000:1 | Visit |
 easyMarkets | 3.7/5 | EF Worldwide Ltd, FSA Seychelles securities dealer | ✓ | 2,000:1 | Visit |
 Axi | 3.5/5 | AxiTrader LLC, registered in St Vincent and the Grenadines | ✗ | 1,000:1 | Visit |
 EBC Financial | 3.5/5 | EBC Financial Group | ✓ | 500:1 | Visit |
 AXIORY | 3.4/5 | FSC Belize 4496214 | ✓ | 2,000:1 | Visit |
 BigBoss | 3.2/5 | Comoros | ✓ | 2,222:1 | Visit |
Related
- How to Spot a Scam Forex Broker: 7 Checks
- Forex Broker Licences Ranked by Tier
- Japan FSA Warnings: What They Mean for Offshore Brokers
- What Happens to Your Money if a Broker Goes Bust
- Seychelles FSA Licence: How Strong Is It?
- Mauritius FSC Licence Explained
- Vanuatu VFSC Licence Explained
- CySEC Regulation: What It Covers
- Forex Glossary
Frequently asked questions
Does segregation guarantee I get my money back?
No. It helps if the firm fails and the money is really there. It can't help if funds were misused or the segregation wasn't real, which is when compensation schemes matter.
Does compensation cover trading losses?
No. The FSCS says it can't accept claims for poor investment performance. Schemes only cover money a failed firm should have held for you.
Is my offshore account covered by the FSCS if the brand is UK-regulated?
No. Only clients of the UK-authorised company are covered. If your contract is with an offshore sister company, UK protection doesn't apply.
How does the Cyprus fund calculate compensation?
It pays the lower of 90% of your covered claims or €20,000, under CySEC's Investor Compensation Fund rules.