A segregated account is a client money account the broker keeps separate from its own operating funds. Your deposit sits in a ring-fenced bank account, not in the broker's working capital. If the firm goes under, the money it holds for clients is meant to be identifiable and returned, rather than swept up with everything else the business owes.
What it is
When you fund a trading account, the cash has to live somewhere. A segregated broker places client deposits in a designated account at a bank, kept apart from the money it uses to pay staff, rent and its own bills. The two pots are never mixed. On paper your balance is a liability the broker owes you, but the actual cash is held on trust, not spent.
Regulators such as the FCA in the UK and ASIC in Australia require this of the firms they authorise. It is one of the clearest differences between a regulated broker and an offshore shell that simply asks you to wire money to a company account.
Why it matters
Segregation matters most on the day a broker fails. If client money is mixed with the firm's own funds, then when the business collapses your deposit is just another debt in the queue behind banks, tax authorities and staff wages. You might get pennies back, years later.
With proper segregation, the administrator can identify client money and return it, because it was never legally the broker's to lose. In the UK, an authorised broker's clients may also fall under the Financial Services Compensation Scheme, which covers eligible claims up to £85,000 if the segregated pot itself comes up short.
A worked example
Say you deposit £20,000 with a regulated, segregating broker and the firm goes insolvent six months later while you hold no open trades.
- Your £20,000 sat in a segregated client bank account the whole time.
- The administrator identifies it as client money and begins returning it.
- If some of the pooled client money is missing — fraud, or an accounting hole — the FSCS covers eligible shortfalls up to £85,000, so your £20,000 is within the limit.
Now the offshore version: the same £20,000 went to a general company account, mixed with the firm's cash. There is no segregation and no compensation scheme. You file a claim and wait behind every other creditor. Realistically you see very little.
Segregation protects your deposit from the broker's insolvency. It does not protect you from your own losing trades, from a market gap, or from a broker that lies about segregating in the first place. Check the regulator's register, not the broker's marketing.
The catches
Segregation is only as good as the enforcement behind it. An unregulated firm can claim "segregated accounts" on its website and do nothing of the sort — there is no one checking. The protection is real when a credible regulator audits it and a compensation scheme sits behind it. Offshore licences from jurisdictions with light oversight offer the words without the substance.
It also does not cover trading losses, a negative balance from a market gap, or money in a bonus that was never really yours. Segregation is about custody of your cash, not the outcome of your positions.
The Karnek note
Karnek watches the trading account itself, read-only, and can never place, close or alter a trade. It cannot see or touch the bank account your deposit sits in — segregation is the broker's and regulator's job, not something monitoring software can enforce.
Written and reviewed by the Karnek Research team. Last updated August 2026.
Educational content only - not financial advice. Past performance does not predict future results. Trading carries significant risk.