Retail traders have moved well beyond the days of chasing only high leverage and low spreads. Standard regulatory protections no longer suffice as FX/CFD clients increasingly expect added layers of financial security. Now, firms can secure these safeguards, starting from $30,000 annually (depending on the number of clients). In fact, around 40 companies within Lloyd’s of London now offer private insurance for client funds, reflecting a broader industry shift toward heightened financial accountability.

Insurance Beyond
Regulatory Requirements

Additional
insurance services for client funds are growing in popularity in the FX/CFD
sector. Only in the past several months, they have been added to the offerings of VT
Markets, EC Markets, Hantec Markets and ATFX.

Specialized “Excess of Loss” (or EoL) insurance aims to protect clients in case of broker
insolvency, providing an additional layer of confidence for traders with larger
balances. According to information obtained by Finance Magnates, Lloyd’s
has issued more than three dozen policies for FX/CFD-related firms.

“Each
policy is tailored specifically to the broker’s unique risk profile, client
demographics and operational needs,” Lloyd’s commented for Finance Magnates. “Customization ensures that the coverage
meets the precise requirements of each firm.”

VT Markets
emphasizes that additional insurance is a key part of its approach to client
safety. “While regulatory guarantee funds provide a baseline level of
protection, this policy offers an extra layer of security, particularly for
clients with higher account balances,” the broker commented.

Although
this makes sense, additional client fund insurance is not yet a standard
practice across the industry. Many brokers still rely solely on regulatory
protection schemes like CySEC ‘s Investor Compensation Fund or the UK’s
Financial Services Compensation Scheme (FSCS), which provide compensation
limits of up to €20,000 and £85,000 per person, respectively.

“CySEC’s
Investor Compensation Fund, established in 2002, is required for any CIF under
the regulator. The fund protects investors in case of failure by one of their
members,” said
Niki Nikolaou, Director of Contentworks Agency. “What
was once considered adequate protection is now just the baseline.”

However,
these caps may fall short, particularly for qualified professional traders with
higher net worth, who often seek more comprehensive protection.

“Typically,
investor protection funds cover a limited amount. EC Markets’ insurance, by
contrast, extends this coverage up to $1 million per Claimant, providing a
substantial safety buffer,” said Nick Xydas, Group Marketing Director of EC
Markets. “This additional layer of protection ensures that our clients are
covered even in scenarios where losses might exceed the limits of traditional
investor protection funds.”

Recently,
several companies have started offering additional insurance for clients’
funds. In 2023, EC Markets added this option, providing coverage up to $1
million per claimant. In August, ATFX
introduced a similar Client Fund Insurance, also covering up to $1 million.
VT Markets followed suit in October, offering clients the same coverage amount.

However, $1
million is not the industry standard. For instance, Hantec Markets introduced
coverage of up to $500,000 per claimant a few months ago, while Windsor
Brokers states on its website that it protects clients up to €5 million.

When and How Much

This means each client can potentially claim up to the maximum insured amount, contingent on the specifics of an insolvency event. However, each insurance policy carries an overall coverage limit intended to allow all clients to recover funds. In insolvency cases, this setup may result in trades recovering only part of their assets, though still more than traditional compensation funds would provide.

Analyzing
the current EC Markets agreement with Lloyd’s also reveals a clause on a
“retention” of $20,000. What does this mean? Among other things, it implies
that investors with smaller portfolios (essentially most retail investors) won’t
benefit from the insurance.

The $20,000
is the minimum amount that must be lost before the insurance coverage kicks in.
If a client loses $15,000, they won’t receive even a dime from the insurer.
However, if they lose $50,000, they would receive $30,000. On one
hand, this poses a challenge. On the other, it’s not entirely an issue. Initial
losses below this threshold are theoretically covered by guarantee funds set up
by regulators.

The EoL
insurance policy becomes active when a broker becomes insolvent—meaning they
can’t meet their financial obligations. This can happen in several ways: the
broker might enter legal proceedings like liquidation, declare a moratorium on
debt payments, or fail to maintain required regulatory capital levels.
Sometimes, the broker simply admits they can’t pay their clients.

Think of it
like a business declaring bankruptcy : there needs to be official recognition
or proof that the company can’t continue operating normally.

“The
detailed criteria for insolvency align closely with industry standards and
include conditions like moratorium declarations, liquidation processes, and
creditor arrangements,” VT Markets explained.

The key
point is that the insurance doesn’t activate for minor financial issues—it
only kicks in when there’s a serious, documented case of insolvency.

Costs and Opportunities

Naturally,
additional insurance coverage comes with costs. VT Markets disclosed that
premiums for such insurance policies start at approximately $30,000 per year, with the
final amount depending on factors like coverage size and the firm’s risk
profile. As EC Markets additionally reveals, the amount depends on the number of clients. If the broker exceeds a specified cap of traders, these values will increase.

This expense is a significant commitment, but one that brokers are
willing to undertake to enhance client trust.

ATFX has
also echoed this sentiment, noting that the added costs are outweighed by the
strategic advantages of attracting more mature clients who value enhanced fund
protection.

“This
investment in client protection is often seen as a strategic decision to
enhance client confidence and potentially attract more mature clients, which
can offset the costs over time through increased business,” ATFX added.

Excess of
Loss insurance policies differs significantly from standard regulatory guarantee
funds. Regulatory funds operate as pooled resources funded by contributions
across the industry, whereas additional insurance policies are private
arrangements tailored to a broker’s unique risk profile and operational needs.

“The
value of such coverage lies in its ability to address catastrophic events that
might exceed standard fund limits,” said VT Markets.

EC Markets
notes, however, that offering the same insurance conditions isn’t possible
everywhere. Sometimes, local regulations prevent certain client groups from
accessing these benefits.

“While we
aim to provide this level of protection globally, there are regions where
differing regulations and local market conditions currently prevent us from
doing so,” Xydas added. “However, EC Markets continuously evaluates these
conditions to explore possibilities for expanding this crucial client
protection to more regions in the future.”

Competitive Edge

This
additional insurance provides more than just financial security. It serves as a
marketing tool. By offering enhanced safeguards, brokers not only protect their
clients but also establish themselves as reliable and credible entities in the
eyes of prospective customers. The ability to provide assurances beyond basic
regulatory requirements is increasingly becoming a way for brokers to stand out.

“This trend
is partly driven by growing demand by customers as they get more mature and a
competitive market where brokers seek to differentiate themselves through added
security features,” said Jeffrey Siu, Chief Operations
Officer of ATFX.

“While
client requests for enhanced protection can be a significant motivator, many
brokers also implement such measures as part of their broader strategy to
improve client trust and satisfaction,” he added.

The benefits are substantial for clients, too. The additional insurance provides an
extra layer of financial protection, especially in the unlikely event of a
broker’s insolvency. This peace of mind is particularly appealing to traders
with larger balances, who may exceed the limits of traditional investor
compensation schemes.

By bridging
the gap between standard regulatory protections and full coverage, this
insurance ensures that clients feel secure and confident in their trading
activities, even during periods of market volatility.

“In some
cases, it fills gaps where clients may otherwise have little or no protection,
giving brokers a competitive advantage in offering superior security to their
clients,” added Lloyd’s of London.

As market sophistication grows and competition
intensifies, an additional insurance trend is likely to become an industry
standard rather than a luxury offering. For both brokers and traders, this new
era of enhanced security represents not just a safer trading environment, but a
more mature and sustainable industry for years to come.