What happens if your broker goes out of business?
Last updated August 2026
Short answer
The fear this question expresses is usually about the market rather than the firm, and the two are protected in completely different ways.
Why segregation matters more than insurance
Broker-dealers are required to keep customer securities separate from their own assets.
When a firm fails, those assets are generally still there, and the practical outcome is a transfer to another broker rather than a claim.
SIPC exists for the exception: the shortfall created when segregation was breached, usually through fraud.
What SIPC covers
Cash and securities held at a failed member firm: stocks, bonds, Treasury securities, certificates of deposit and mutual funds.
Up to $500,000 per customer, of which no more than $250,000 may be cash.
Coverage is per customer per firm by separate capacity, so different account registrations at the same broker carry their own limits.
What it does not cover
A decline in the value of your securities, which SIPC states explicitly.
Losses from bad investment advice, and securities that turned out to be worthless.
Commodity futures with limited exceptions, foreign exchange, unregistered investment contracts, fixed annuities, stablecoins, currency and commodities.
Try it in Walnut
Walnut connects to your brokerage and reads what you hold. Your assets stay at your broker, where the custody and any SIPC membership sit.
How a liquidation actually runs
A trustee is appointed and customer accounts are typically moved to another brokerage in bulk.
Most customers never file a claim, because their securities were segregated and simply transfer.
Where claims are needed, deadlines are set during the proceeding, so responding to trustee notices promptly matters.
Reducing the exposure you can control
Check membership and registration before funding an account, using SIPC's member list and FINRA BrokerCheck.
Split balances above the limits across more than one firm, which is the only complete answer for a large portfolio.
Keep your own records: statements, trade confirmations and cost basis, which is the evidence any claim would rest on.
Where the real risk sits
Not with mainstream brokers, whose failures have historically produced transfers rather than losses.
With unregistered firms holding customer money outside the system, where there is no segregation and no coverage.
Checking registration first is therefore worth considerably more than understanding the limits in detail.
The clearing firm question
Many app-based brokers do not self-clear. A separate clearing firm holds the securities and carries out settlement.
In that arrangement it is the clearing firm's membership and financial health that determine what happens in a failure, not the app's.
The relationship is disclosed in the account agreement, usually in the opening paragraphs, and a broker that cannot name its custodian plainly has answered the question.
Sources
Coverage limits, exclusions and the liquidation process are published by SIPC. Broker registration can be checked at FINRA BrokerCheck. Walnut is informational and is not an investment adviser. This guide is educational and not personalized investment advice.
FAQ
What happens to my investments if my broker fails?
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Customer securities are required to be held separately from the firm's own assets, so in most failures accounts are transferred in bulk to another brokerage, frequently within weeks. SIPC steps in where assets are actually missing.
How much does SIPC cover?
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Up to $500,000 per customer, which includes a $250,000 limit for cash. It applies per customer per firm by separate capacity, so an individual account and a joint account are treated separately.
Does SIPC cover market losses?
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No. SIPC states plainly that it does not protect against the decline in value of your securities. It restores what should have been in your account, not what you wish it had been worth.
How long does it take to get access?
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Bulk transfers to another broker frequently complete within weeks. Where a claim is required, a trustee sets deadlines during the proceeding, and responding to notices promptly matters more than most people expect.
What is not covered?
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Commodity futures with limited exceptions, foreign exchange trades, unregistered investment contracts, fixed annuities, stablecoins, currency and commodities. Cash held in connection with a commodities trade is also outside coverage.
What about excess coverage?
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Some brokers buy additional private insurance above the SIPC limits from commercial insurers. That is a contract with terms rather than an extension of SIPC, so the conditions are worth reading rather than assuming.
Should I split large balances between brokers?
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It is the straightforward answer where the total exceeds the limits. The cost is two sets of statements and two cost basis records, which is a real but modest inconvenience.
How do I check my broker is a member?
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Membership is listed on SIPC's own site, and members are required to display it. A firm you cannot find in that list is the thing to resolve before funding an account rather than after.
Does it matter who clears my trades?
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Considerably. Many app-based brokers use a separate clearing firm to hold securities, and in a failure it is that firm's membership and health that matter. The account agreement names it, and a broker that cannot state its custodian plainly has told you something.
Is my cash treated the same as my securities?
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No. Cash falls under the $250,000 sub-limit inside the $500,000 total. Some brokers instead sweep cash to partner banks, where FDIC insurance applies per bank on its own terms. The account agreement states which arrangement applies to your balance.
Has this actually happened to retail investors?
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Yes, and the outcome has usually been a transfer to another firm rather than a loss, because customer assets were segregated as required. The cases that produced real losses generally involved fraud, where the segregation itself had been breached.