Investing term

What is Investor protection scheme?

A legally-mandated fund that reimburses retail clients (up to a cap) if a regulated broker fails.

An investor protection scheme is a legally mandated fund that reimburses retail clients, up to a cap, if a regulated broker fails or misappropriates assets. It's a key reason to use brokers covered by a recognized scheme in a strong jurisdiction — your money has a backstop. Unregulated offshore brokers typically offer no such protection, which is exactly the risk.

For example

If a covered broker collapses, the protection scheme might reimburse clients up to, say, $250,000 each — a safety net absent at offshore firms.

Investor protection scheme is taught hands-on in Stage 9 — Fees, Scams & Protecting Your Money.

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Related terms

ChargebackA consumer protection on credit-card transactions that lets you reverse fraudulent charges.Fee dragThe cumulative effect of every fee you pay on the return you actually keep.FX markupThe gap between the true (mid-market) exchange rate and the rate your broker gives you.Inactivity feeA fee charged if you don't trade enough times per year.
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