Segregated funds means your broker must hold customer money separately from its own, account for it separately, and never spend it on the firm's business or on another customer's positions. It is a bookkeeping rule enforced by regulators — not insurance, not a guarantee, and in retail forex, frequently not present at all.
"Segregated" is one of the most reassuring words on a broker's website, and one of the least examined. It is doing real work: the regime exists because the alternative — a firm treating customer deposits as working capital — is how customers lose money that had nothing to do with the market. But the protection has a precise shape, and almost every trader assumes it is wider than it is.
What the rule actually requires
In US futures, segregation comes from Section 4d(a)(2) of the Commodity Exchange Act and is implemented by CFTC Regulations 1.20 through 1.30. A futures commission merchant must separately account for, and segregate from its own funds, all money and property received to margin or secure customer trades. The funds may only be deposited with a bank, trust company, clearing organisation or another FCM, under an account name that identifies them on its face as belonging to customers (CFTC, Futures Commission Merchants).
Two prohibitions carry most of the weight:
- The firm cannot use customer money as its own. Not for operating expenses, not for proprietary trading, not as collateral for a loan to the firm.
- One customer's money cannot margin another customer's positions. Your balance does not quietly backstop someone else's losing trade.
That second point is the one worth internalising. It means a stranger blowing up an account at your broker is, by design, not your problem. Your own account remains entirely your problem, which is what risk management is for.
Three account types, three different protections
The single most common mistake is assuming the protection travels with the broker. It does not. It travels with the product, and the same firm can offer you three accounts with three different regimes.
| US securities | US futures | Retail forex | |
|---|---|---|---|
| Customer funds segregated | Yes — customer reserve requirements | Yes — Section 4d, Reg 1.20 | Not required |
| Insurance-style backstop | SIPC, to defined limits | None equivalent | None |
| Priority in bankruptcy | Customer property claims | Customer class, shared pro rata | May be none |
| Primary regulator | SEC / FINRA | CFTC / NFA | CFTC / NFA |
Securities: segregation plus SIPC
Securities customers get the reserve and possession-or-control requirements, and on top of that a backstop if the broker fails and assets are missing. SIPC protection is limited to $500,000 per customer, which includes a $250,000 limit for cash (SIPC, What SIPC Protects). It is a failure-of-the-firm backstop, not market-loss cover — a point SIPC makes repeatedly, because it is the thing people get wrong.
Futures: segregation without SIPC
Futures customers get the stronger, more prescriptive segregation regime and no SIPC. The same SIPC page states that it does not protect commodity futures contracts unless they are held in a special portfolio margining account. In a futures broker failure, customer property is pooled and distributed pro rata across the customer class — so a shortfall is shared, and the protection is structural rather than a guaranteed dollar figure. If you trade futures, that trade-off is worth understanding before it matters rather than after.
Retail forex: the gap nobody advertises
This is the part most traders have never been told. NFA guidance for forex dealer members is explicit that retail customers' forex funds are not required to be segregated, and may not receive priority in bankruptcy even if they were — and members are specifically prohibited from representing that forex funds deposited with them receive special protection under the bankruptcy laws (NFA Interpretive Notice 9053, Forex Transactions).
What retail forex customers get instead is capital strength at the firm level: FCMs and retail foreign exchange dealers must maintain net capital of $20 million plus 5 percent of the amount by which liabilities to retail forex customers exceed $10 million (CFTC, Foreign Currency Trading). That is a meaningful barrier to entry and a real solvency cushion. It is not the same thing as your money being ring-fenced, and it should shape how much you keep on deposit — the reasoning is in the forex trading guide.
What segregation does not protect you from
Read this list as the boundary of the promise, not as a reason to dismiss it.
- Your own losses. Nothing here touches market risk. A segregated account can go to zero on Tuesday.
- Fraud that breaks the rule. Segregation is a requirement, not a physical barrier. Its enforcement is audits and reporting, which means violations are found after the fact.
- Delay. Even where funds are fully accounted for, an insolvency freezes access while positions are transferred or liquidated. Money you needed this week may be unavailable for months.
- Offshore entities. A brand regulated in one jurisdiction may onboard you through a subsidiary in another with none of this. This is exactly why you check the legal entity when you test a new broker.
- Affiliates. Money moved to a related company is outside the regime that applied where it started.
MF Global: what it looks like when the rule is broken
The clearest illustration is also the most-cited. When MF Global Inc. failed on October 31, 2011, customer funds that should have been segregated were not there. The CFTC's enforcement action charged the firm with the unlawful use of customer money, and a federal court in New York ultimately ordered MF Global Holdings Ltd. to pay $1.212 billion in restitution to customers, plus a $100 million civil monetary penalty (CFTC, Press Release 7095-14).
Two lessons sit in that case, and they point in opposite directions. The regime worked in the sense that customers were eventually made whole through the courts. It also failed in the sense that the money was missing in the first place, and customers spent years without access to it. Eventually whole is a very different outcome from whole on Monday, and a trader's plan has to survive the gap between them.
How to check your own broker in five minutes
- Find the legal entity on the account agreement, not the brand on the homepage.
- Confirm the regulator and registration for that entity — FINRA BrokerCheck for US securities firms, NFA BASIC for futures and forex.
- Identify which regime your specific account falls under. Securities, futures and forex are three different answers at the same firm.
- Read the risk disclosure on funds. Legitimate firms state the limits plainly; the language is a tell either way.
- Decide your working balance and move the rest out. Then apply the same reasoning to prop capital — the structure differs again, as prop firm vs own capital sets out.
Frequently Asked Questions
What does segregated funds actually mean?
It means your broker must keep customer money in accounts that are separately identified and separately accounted for from the firm's own money, and may not use one customer's funds to margin another customer's positions or to finance its own business. In US futures, this comes from Section 4d(a)(2) of the Commodity Exchange Act and CFTC Regulations 1.20 through 1.30.
Does segregation mean my money is insured?
No. Segregation is a rule about where money is held and what it may be used for. It is not insurance and it does not guarantee you get everything back. It protects you from your broker's ordinary business risk — a firm failing because its own trading or lending went wrong — but it cannot protect you from fraud that breaks the rule, and it never protects you from your own trading losses.
Are retail forex funds segregated?
Generally no, and this is the largest gap most traders do not know about. NFA guidance states plainly that retail customers' forex funds are not required to be segregated and may not receive priority in bankruptcy even if they were. Members are specifically prohibited from representing that forex funds receive special protection under the bankruptcy laws.
Does SIPC cover my futures account?
Not normally. SIPC protection is capped at $500,000 per customer, including a $250,000 limit for cash, and SIPC states that it does not protect commodity futures contracts unless they are held in a special portfolio margining account. Futures customers rely on the CFTC segregation regime instead, which works differently and carries no equivalent dollar guarantee.
Bottom line
Segregation is a genuine protection with a narrow definition: your broker cannot spend your money on itself. It is not insurance, it does not cover your losses, it does not guarantee same-week access in a failure, and in retail forex it is usually not required at all. Find out which of the three regimes your account sits under, keep your working balance sized to what you actually trade, and treat counterparty risk as a position you have taken — because it is one. Start with how to choose a broker for day trading, then run the experiment in how to test a new broker with a small deposit. Rules on customer funds vary by country and by product; check your own jurisdiction and speak to a licensed professional about anything that turns on the detail.