What happens to your money when a forex broker goes bust?

Most traders spend hours choosing a strategy and minutes choosing a broker. Yet a broker failure is the one event that can take money you never risked on a trade. It has happened to regulated, household-name firms, and when it happens the outcome is decided almost entirely by where the broker was authorised and how it held your money.

Here is what actually happened in the three failures that shaped today’s rules, and what that means for your account.

The day the franc broke three brokers

On 15 January 2015 the Swiss National Bank abandoned the minimum exchange rate of 1.20 francs per euro it had defended since 2011. EUR/CHF fell more than a fifth in minutes. Liquidity vanished, stop losses filled far below where they were placed, and many accounts ended the day below zero.

Brokers carry those negative balances. If clients can’t pay, the broker must, and for some that was more capital than they had.

Alpari UK: special administration

Alpari (UK) Limited entered the UK’s special administration regime on 19 January 2015, four days after the SNB’s move. KPMG partners were appointed as joint special administrators.

What clients went through is the template for any UK broker failure:

• Client money held in segregated accounts was pooled and returned to clients in proportion to their claims, after the administrators’ costs were met from it.
• The FSCS compensated eligible clients for shortfalls, up to the limit that applied at the time: £50,000 per person.
• Claimants assigned their rights to the FSCS, which then recovered what it could from the administration. Interim and catch-up distributions followed over the next three years.
• The High Court ordered the administration closed on 19 April 2018, more than three years after it began.

Clients with claims inside the limit were covered by the FSCS; anything above it depended on what the administration recovered. Either way, it meant months or years of frozen funds, claim portals and progress reports.

FXCM: rescued, not bust

FXCM, then one of the largest retail FX brokers in the world, reported client negative balances of about $225 million after the SNB’s move, enough to breach its regulatory capital requirements. Leucadia, the owner of Jefferies, lent it $300 million on 16 January 2015 on punishing terms: interest starting at 10% and rising every quarter.

FXCM’s clients didn’t lose deposits, because a buyer stepped in within a day. The lesson is that a big name is no guarantee: a single unexpected move can push a broker to the edge, and whether clients are hurt depends on a rescue that nobody can count on.

MF Global: when client money isn’t where it should be

MF Global was a major US futures broker that filed for bankruptcy on 31 October 2011, after a large losing bet on European government bonds. More than $1.6 billion of customer money that should have been segregated was missing.

Customers were eventually repaid in full. The trustee secured a 100% return of commodity customer property, with final distributions starting in April 2014, two and a half years after the collapse. Full recovery took a court process, settlements and a loan from the parent company’s estate.

MF Global is the case that matters most for one reason: segregation is a rule, not a guarantee. If a firm breaks it, you are relying on what can be recovered.

What protects you today, country by country

The 2015 failures changed the rules for retail CFD and forex accounts in the UK and EU. The most important change is negative balance protection: a retail client can’t lose more than the money in their account. In the UK the FCA made this permanent from 1 August 2019, alongside leverage caps of 30:1 on major currency pairs and a mandatory close-out when equity falls to 50% of required margin. That removes the mechanism that sank Alpari: clients owing the broker money it could never collect.

Compensation if the broker fails is a separate layer:

Where the broker is authorised	Client money rules	Compensation if the firm fails
UK (FCA)	Segregated client money	FSCS: up to £85,000 per person, per firm (failures since 1 April 2019)
EU (for example Cyprus, CySEC)	Segregated client money	National investor scheme, legal minimum €20,000. Cyprus: €20,000 or 90% of the claim, whichever is lower
US (CFTC/NFA forex dealers)	No legal segregation requirement for retail forex	None: no SIPC, no NFA insurance fund. Customers are general creditors
Offshore (for example Vanuatu, St Vincent, Seychelles)	Varies, often light	Usually none

Why offshore brokers are the real risk

Many brokers that advertise to UK and EU traders run their retail business through an offshore entity, because it can offer 500:1 leverage and bonuses that the FCA and ESMA ban. When you open an account, check which entity you are signing with. The brand’s UK licence does not cover you if your contract is with its Seychelles subsidiary.

The trade-off is stark. Higher leverage and a deposit bonus, in exchange for no compensation scheme, weaker client money rules and a regulator that may never act. If that broker fails, there is often no one to claim from.

Five checks before you deposit

1. Find the legal entity on your account agreement, not on the homepage. Search for that exact entity name on the regulator’s register (the FCA Register in the UK).
2. Confirm that client money is segregated and which bank holds it. Reputable brokers name their banks.
3. Check which compensation scheme applies to that entity and its limit. Treat any balance above the limit as uninsured.
4. Look for negative balance protection in the client agreement, not just the marketing.
5. Don’t keep more with a broker than you are trading. Withdraw profits regularly. Money in your bank account is outside any broker’s insolvency.

None of this makes a strategy more profitable. It decides whether a black-swan day costs you a trade or your account, and it takes an evening to check.