What happens to my money if my broker goes bust?Start here

Your shares are not the broker's to lose. The cash usually is somebody else's problem. The gap between those two sentences is where everything goes wrong.

The short answer: the shares and funds you bought are held in your name, or in a pooled account that is legally yours and not the firm's. A broker that fails cannot pay its own creditors with them. An administrator counts them, matches them to clients and moves them to another firm. It is slow — weeks, sometimes months — and during that time you cannot trade. But the assets are there.

Why are my shares safe when the broker is not?

Because they were never the broker's property. Rules in every major market require client assets to be held separately from the firm's own — a different account, at a different institution, marked as belonging to clients. The broker is a caretaker, not an owner.

That is the whole protection, and it is a strong one. It also explains the failure mode: it works exactly as long as the separation was real. Every large broker collapse where clients lost assets is a story about records that did not match, or assets that had quietly been used for something else. The rule was not weak. It was broken.

What about the cash sitting in my account?

This is different, and worse. Cash you have not invested is usually held at a bank, and there it is a deposit — which means you are a lender to that bank, not an owner of anything. If the bank fails, you are in the queue with everyone else, and you fall back on deposit insurance. In the EU that covers €100,000 per person per bank. In the UK it is £85,000. In the US the FDIC covers $250,000.

Two things follow. Large cash balances at a broker are worth thinking about, because the limit is per bank and not per broker. And it is worth knowing which bank your broker uses, because if you already hold savings there, the limit covers both together.

Is there compensation if assets really do go missing?

Yes, and it is much smaller than people expect. Investor compensation schemes exist to cover the case where segregated assets cannot be returned — the records failure, not the market falling. The EU minimum is €20,000. The UK pays up to £85,000. The US SIPC covers $500,000 including a $250,000 cash sub-limit.

None of these pay you anything because an investment lost money. They pay when the firm cannot hand back what was yours. Read the investor protection page for how the schemes differ.

Does it matter if I lent my shares out?

It matters a great deal. Many brokers run a securities lending programme: your shares are lent to someone who wants to sell short, and you get a share of the fee. While they are lent, you no longer own those shares. You own a claim on their return, backed by collateral.

If the borrower and the collateral both fail at once, that claim is where you stand. It is a small risk in normal weather and precisely the risk that shows up in a crisis. Some brokers make the programme opt-in, some opt-out, and some make it a condition of a free account. It is worth knowing which one you signed.

What about products that are not really assets?

This is the part that surprises people most. A tracker certificate, a credit-linked note, an ETC and a CFD are not things you own. They are promises made by a bank. There is nothing to segregate and nothing for an administrator to hand back — if the issuer fails, you are an unsecured creditor of it, whatever the underlying index did.

That is the single most important distinction on this whole site, and what the wrapper changes is the page that walks through it product by product.

So what actually reduces the risk?

• Keep large idle cash somewhere you chose deliberately, not wherever it landed.
• Know whether your shares are lent out, and whether you can turn that off.
• Know which of your holdings are assets and which are promises from an issuer.
• Keep your own record of what you hold. Reconstruction after a failure runs on records, and having your own makes you a much easier client to pay.

None of that is exotic. It is the same four questions, asked once, and then not again for years.