Module 2: Brokers, Accounts and Platforms (UK) · Lesson 4 of 11 · Back to course
There are two very different ways to lose money in trading. The first – by far the most common – is that your trades lose. The second is that the firm holding your money fails or misbehaves. UK rules offer real protection against the second. They offer none against the first. This lesson explains what’s protected, what isn’t, and how to check.
1. Client money rules: your money is kept separate
FCA-authorised firms that hold money for retail clients must follow the client money rules (part of the FCA’s “CASS” rules). In simple terms:
- Your money must be held in segregated client bank accounts, separate from the firm’s own money.
- The firm can’t use your money to run its business or pay its debts.
- If the firm goes bust, client money is meant to be returned to clients, not handed to the firm’s other creditors.
- The firm must do regular reconciliations to check the client money adds up.
There’s a big catch, though: money used as margin on your open trades is still at risk from your trades. Segregation protects you from the firm, not from the market.
Also watch for offers to become a “professional client”. If you opt up, you may lose some protections – including the retail leverage limits and negative balance protection (see below). Think very carefully before agreeing.
2. FSCS: compensation if the firm fails
The Financial Services Compensation Scheme (FSCS) is the UK’s safety net for customers of authorised financial firms that fail.
- For investment firms, FSCS can pay up to £85,000 per eligible person, per firm if the firm fails on or after 1 April 2019 and can’t return what it owes you (FSCS).
- For bank deposits, the limit is different: £120,000 per eligible person, per authorised bank, from 1 December 2025 (FSCS). That’s for savings in banks and building societies, not trading accounts.
What FSCS doesn’t cover:
- Trading losses. If your trades lose money, there’s nothing to claim.
- Firms that aren’t authorised. Offshore or unregulated firms aren’t covered.
- Most prop firm fees. Prop firms are generally not FCA authorised, and challenge fees aren’t investments held for you.
- Amounts above the limit. Anything over £85,000 per firm may not be fully covered.
Even when you are covered, getting money back after a firm fails can take months. When a UK investment firm fails, it’s usually handled through a special administration process designed to return client assets – but it isn’t instant.
3. Negative balance protection
Negative balance protection means that, as a retail client trading CFDs or spread bets with a UK firm, you can’t lose more than the money in your trading account. If a market gaps violently and your account would go below zero, the firm must absorb the extra loss.
It’s an important protection, but understand its limits:
- It protects your total account, not each trade. Everything in the account can still be lost.
- It applies to retail clients. Professional clients usually don’t get it.
- It applies under the FCA’s CFD and spread bet rules. Other products, such as futures with some brokers, may not offer it.
- The firm may close your positions automatically before you reach zero (the margin close-out rule – see Lesson 2.5).
4. The Financial Ombudsman Service
If you have a complaint against an authorised firm – for example, a trade was handled wrongly, or charges weren’t what you were told – complain to the firm first. If it doesn’t sort it out within eight weeks, or you’re unhappy with its final response, you can usually take it to the Financial Ombudsman Service (FOS) for free. The FOS can’t help with complaints about simply losing money on trades you chose to place.
Example: what each protection does (illustrative numbers)
All figures are made up for teaching purposes.
Sam has £4,000 in a spread betting account with an FCA-authorised firm.
- Scenario A – bad trading. Sam loses £1,500 over a month on trades that hit their stops. No protection applies. The money is gone.
- Scenario B – a weekend gap. Sam holds a large position over a weekend. Big news breaks and the market opens far beyond Sam’s stop. The loss works out at £4,600 – more than the account. With negative balance protection, the account goes to £0, not −£600. Sam has still lost £4,000.
- Scenario C – the firm fails. The firm goes into administration owing clients money. Sam’s money should be in segregated client accounts. If there’s a shortfall, Sam may be able to claim from FSCS, up to £85,000. It could take months.
- Scenario D – an unauthorised offshore “broker”. None of the above applies. If it disappears, Sam may get nothing back.
How to check what protection you have
- Confirm the firm is authorised on the FCA register, and that the legal entity you’re signing up with is the UK-authorised one (some brands have entities in several countries).
- Read the client agreement and the provider’s client money or “how your money is protected” page.
- Confirm you’re classed as a retail client.
- Check whether your account is with the UK entity before agreeing to any “upgrade” or move to an overseas entity offering higher leverage.
Key takeaways
- Client money rules keep your money separate from the firm’s, but don’t protect it from your trades.
- FSCS can cover up to £85,000 per person per investment firm if an authorised firm fails – not trading losses.
- Negative balance protection stops a retail CFD or spread bet account going below zero.
- Unauthorised firms, prop firm fees and professional-client accounts usually lose some or all of these protections.
Quick quiz
- Does FSCS cover losses from your own trades? (No.)
- What’s the FSCS limit for an investment firm that failed after 1 April 2019? (£85,000 per eligible person, per firm.)
- A gap would take your retail CFD account to −£300. What does negative balance protection do? (Your balance is reset to £0; the firm absorbs the £300.)
- What might you lose by opting up to professional client status? (Protections such as the retail leverage limits and negative balance protection.)
- Who handles complaints that an authorised firm hasn’t resolved? (The Financial Ombudsman Service.)
Key terms
FSCS · FOS · Negative balance protection · Retail client · Margin · Close-out · Gap
Try this
Find the “how we protect your money” page of any two FCA-authorised providers (by typing their web addresses). For each one, write down: the legal entity name, whether retail client money is segregated, whether negative balance protection applies, and which compensation scheme they mention. If either page is vague, note that too – clarity is part of what you’re judging.
FAQ
Is my money safe with an FCA-regulated broker? It’s protected from the firm misusing it or failing, within the limits above. It’s not protected from trading losses, which are how most retail traders lose money.
What happens if my broker goes bust? Client money should be returned from segregated accounts through an administration process. If there’s a shortfall, FSCS may compensate eligible clients up to £85,000. It can take time.
Are prop firm challenge fees protected? Generally not. Most prop firms aren’t FCA authorised, and their fees aren’t covered by FSCS or usually the FOS.
Disclaimer: This page is general education, not financial, investment or legal advice or a personal recommendation, and it doesn’t take your circumstances into account. Examples are hypothetical, for illustration only, and not an invitation to buy or sell. Learning a strategy doesn’t guarantee profits. Past performance is not a reliable guide to future results. Futures, spread bets and CFDs are complex and carry a high risk of losing money quickly because of leverage, and most retail traders lose money. With a real futures account, losses can exceed your deposit. Only trade with money you can afford to lose, and speak to an independent FCA-authorised adviser if you’re unsure. Read our full risk warning.