Regulation & Client ProtectionCompensation SchemeInvestor Protection Fund
Investor Compensation Scheme
A statutory fund that pays eligible clients a capped amount when a regulated firm fails and cannot return their money.
What Investor Compensation Scheme means
An investor compensation scheme is a statutory fund of last resort that pays eligible clients when an authorised firm fails and cannot return client money or instruments. Schemes are typically funded by levies on the regulated industry rather than by taxpayers, and each jurisdiction sets its own cap: 85,000 GBP per person per firm under the UK FSCS, 20,000 EUR under the Cypriot Investor Compensation Fund, 90 percent of the loss up to 20,000 EUR in Ireland and Germany, and 1,000,000 CAD through the Canadian Investor Protection Fund.
A claim generally requires a formal determination that the firm is in default, after which the scheme assesses eligibility, verifies the balance owed and pays directly to the client, usually after any distribution from the segregated client money pool has been taken into account. Claiming is free and does not require a solicitor or a claims management company. Eligibility is usually restricted to retail clients and small businesses, and limits apply per person per firm rather than per account, so multiple accounts with the same failed firm share one cap.
Compensation schemes cover firm failure, not trading performance. They do not reimburse money lost because a position moved against the client, because leverage amplified a loss, or because the client disagrees with a margin close-out. They do not cover accounts held with offshore group entities, unauthorised firms or clones, and most exclude per se professional clients and large corporates. Australia, South Africa, New Zealand and several other jurisdictions have no comparable retail scheme at all.
Worked example
A client with 120,000 GBP at a failed UK investment firm recovers most of the balance from the segregated pool and claims the remaining shortfall from the FSCS, capped at 85,000 GBP. A client who simply lost 120,000 GBP trading has no claim of any kind.
Related terms
- FSCS (Financial Services Compensation Scheme)The UK statutory compensation fund that covers eligible investment claims up to 85,000 GBP if an authorised firm fails.
- Segregated AccountsClient money held in bank accounts separate from the broker's own funds, so it is not available to the firm's creditors.
- CySEC (Cyprus Securities and Exchange Commission)The Cypriot securities regulator and the most common EU licensing hub for retail forex and CFD brokers.
- Professional ClientA client category with fewer regulatory protections, available to institutions and to individuals who pass an opt-up test.
- Offshore RegulationLicensing from low-oversight jurisdictions that permits high leverage but offers far weaker capital rules and client recourse.
Frequently asked questions
What does Investor Compensation Scheme mean in forex trading?
A statutory fund that pays eligible clients a capped amount when a regulated firm fails and cannot return their money.
How does Investor Compensation Scheme work in practice?
A claim generally requires a formal determination that the firm is in default, after which the scheme assesses eligibility, verifies the balance owed and pays directly to the client, usually after any distribution from the segregated client money pool has been taken into account. Claiming is free and does not require a solicitor or a claims management company. Eligibility is usually restricted to retail clients and small businesses, and limits apply per person per firm rather than per account, so multiple accounts with the same failed firm share one cap.
What is an example of Investor Compensation Scheme?
A client with 120,000 GBP at a failed UK investment firm recovers most of the balance from the segregated pool and claims the remaining shortfall from the FSCS, capped at 85,000 GBP. A client who simply lost 120,000 GBP trading has no claim of any kind.
Trade with a regulated broker
Understanding the terminology is the cheap part. The expensive part is choosing a counterparty whose execution, financing and withdrawal behaviour match what the marketing implies. Every broker below has been reviewed with a funded live account, and each review states which legal entity and which regulator applies to the account you would actually open.
Check the licence on the regulator's own register before you deposit — our regulators directory explains what each authority enforces, from leverage caps to compensation limits.