Trust Preservation vs. Segregated Funds in Overseas FX: Are Funds Safe?
Worried about whether your funds would come back if an overseas FX broker went bankrupt?
In short, trust preservation and segregated funds are different systems. Segregation by itself does not guarantee that funds are returned.
This article explains the general differences between the two and how to check them in the broker's official terms and license information.
Summary: Trust preservation and segregation differ in return guarantees
- Trust preservation deposits client funds at a trust bank to prepare for return even if the broker fails
- Segregation keeps client funds apart from the company's own assets
- Segregation alone does not necessarily guarantee that funds are returned
- It is commonly said that overseas brokers mainly use segregation
- Check how a given broker actually manages funds in its terms
What is trust preservation? Deposits at a trust bank
Trust preservation is a system where funds taken from clients are deposited with a trust bank or similar. Its purpose is to prepare for funds to be returned even if the broker goes bankrupt.
For domestic brokers in Japan, trust preservation is required by law in some situations. For overseas brokers, treatment differs by country and broker.
- Client funds are deposited with a third party such as a trust bank
- Designed so funds are returned to the beneficiary (the client) even if the broker fails
- Required by law for domestic FX brokers in Japan
What is segregation? Keeping funds apart from company assets
Segregation means managing client funds in accounts separate from the broker's own working capital. Its purpose is to prevent funds from being mixed or misused.
However, segregation does not guarantee that funds are returned. How well funds are protected can differ depending on whether they are held at a trust bank or a regular bank.
- Client funds are managed in accounts separate from the broker's working capital
- Return on bankruptcy is not guaranteed (whether a compensation scheme exists differs by broker and entity)
- Most overseas brokers use this method; check the applicable terms for details
Trust preservation vs. segregation compared
| Item | Trust preservation | Segregation |
|---|---|---|
| Where funds are held | A trust bank or similar | Bank accounts, etc. (varies by broker) |
| Purpose | To prepare for return if the broker fails | To prevent mixing with company assets |
| Return guarantee | Designed to prepare for return | Does not guarantee return by nature |
| Typical treatment at overseas brokers | Varies by broker | Regarded as the main method |
How to check a broker's fund management
In XB's broker data, client fund management is shown as "Check applicable terms." We do not state the protection status of each broker definitively.
- 1
Open the terms on the official site
Look for the clause describing how client funds are managed.
- 2
Check the applicable entity
See whether the entity name shown at registration is covered by the terms.
- 3
Check the license information
See whether the registration number and regulator name are officially listed.
- 4
Ask official support about anything unclear
For where funds are held and the scope of protection, keep the answer in writing.
See each broker's license information and account conditions with checked dates.
See supported brokersFAQ
Q.What is the difference between trust preservation and segregation in overseas FX?
Trust preservation deposits funds with a trust bank to prepare for return. Segregation keeps funds apart from the company's assets and does not guarantee return by nature.
Q.Do overseas FX brokers use trust preservation?
It differs by broker. It is commonly said that overseas brokers mainly use segregation, but check the official terms for each broker's treatment.
Q.Where can I check how funds are managed?
You can check the official terms, the displayed applicable entity, and the license information. If anything is unclear, contact official support.
This article is for information purposes only and is not investment advice. Conditions may change, so please check each broker's official page for the latest information. Offshore FX and CFD trading carries a risk of losses exceeding your principal.
