In plain English
What Investor compensation scheme means
These schemes are designed as a backstop for specific failures, not as insurance for trading losses. Coverage, eligibility, and payout limits vary widely by country and scheme. Some schemes cover investment business or custody failures; others cover only deposits or only certain client categories.
Why it matters
If a broker fails, a compensation scheme may be the difference between a covered claim and a total loss on the failed-firm side of the balance sheet. The details matter because forex and CFD brokers often operate through separate legal entities, and only some client claims may be covered.
Example
If a regulated broker becomes insolvent and cannot return a client’s segregated cash balance, an eligible client may claim under the relevant compensation scheme. If the trader simply lost money on a leveraged position, that is usually not a covered compensation event. Simplified example: the scheme could cover a custody shortfall, not a bad trade.
Quick answers
Common questions
Does an investor compensation scheme protect trading losses?+
Usually no. These schemes are generally meant for firm failure, custody shortfalls, or other covered events, not market losses from normal trading.
Are all brokers covered by the same scheme?+
No. Coverage depends on the broker’s legal entity, jurisdiction, and the scheme that applies to that entity.
Sources