In plain English
What Client money segregation means
Segregation means the firm should not treat client money as its own. In many regimes, the firm places client funds in separate bank accounts, keeps detailed books, and reconciles balances regularly so client money can be identified if the firm fails. The exact rules vary by jurisdiction and product type.
Why it matters
Segregation is intended to reduce the chance that client money is lost if the firm becomes insolvent or misuses funds. It is a core safeguard for brokers and other intermediaries that hold money on behalf of clients, but it does not guarantee immediate recovery in every insolvency scenario.
Example
A forex broker receives a deposit from a client and places it into a client bank account rather than its revenue account. The broker’s records show which portion belongs to each client. If the broker later becomes insolvent, the client account records help determine what money should be pooled for return or distribution.
Quick answers
Common questions
Is segregated money insured?+
Not automatically. Some jurisdictions have compensation schemes or deposit protection for certain balances, but segregation itself is an accounting and custody control, not insurance.
Does segregation eliminate broker failure risk?+
No. It is designed to reduce client loss if the broker fails, but it does not remove operational, banking, or insolvency risk.
Sources