In plain English
What Investor compensation scheme means
These schemes address firm failure or an inability to return money or assets in defined circumstances. They are not insurance against a losing trade, a falling share price, a bad investment decision, or every type of fraud. Coverage depends on the legal entity holding the account, the product, the client’s eligibility, and the scheme in that jurisdiction.
Why it matters
A broker may operate through several legal entities, each subject to different rules and compensation arrangements. Checking the legal entity named in the account agreement is more useful than relying on a brand name. A scheme can reduce some insolvency-related shortfalls, but it does not remove counterparty, market, or currency risk.
Example
A UK-authorized investment firm fails while holding an eligible customer’s assets or money. The customer may be able to make a claim to the Financial Services Compensation Scheme, subject to its rules and limits. A separate $10,000 trading loss from a correctly executed CFD position would not itself be compensated.
Quick answers
Common questions
Does an investor compensation scheme cover trading losses?+
Usually not. These schemes generally concern a covered firm’s inability to meet obligations, not normal market losses. Coverage depends on the specific scheme’s rules, the product, and the facts of the firm failure.
How can I identify the relevant scheme?+
Check the broker’s account agreement and regulatory disclosures for the legal entity serving you, then verify its authorization and applicable protection arrangements with the relevant regulator or compensation body.
Sources