Bonus Brokers Are For Jokers – Forex Bonus Debunked
The number of retail forex brokers is growing year on year. Currently, there are over 1300 of them out there, all vying for the business of the estimated 9.6 million online traders.
Just like the majority of food retailers who offer loss-leading products to get buyers into their stores, retail forex brokers know they have to offer incentives to get traders on their books. Typically, forex brokers will offer inducements such as sign-on bonuses, commission rebates, no deposit bonuses, and the offer of cash rewards when certain targets are hit by traders. Some also offer demo account trading competitions with prize money on offer to the most successful traders. And of course, all of these are subject to the company’s terms and conditions.
One of the most common types of inducements is a $25 – $50 account opening bonus, where new accounts are credited with $25 or $50 after an application has been accepted, and where traders can commence trading having not deposited any money, and where they get to keep any winnings on the account, suffer no losses, but they do not get to keep the $25 or $50 bonus. This is just a simple tool to offer free margin and get traders out of the starting blocks and up and running.
Another type of inducement looks – on the face of it – to be far more generous and goes something like this: the trader deposits funds of $10,000 and is offered a 10% cash bonus on successful opening and closing of 200 standard lots. This sounds great until you actually drill down a little more into the offer because 200 lots equate to approximately 2000 mini lot trades of $1 per pip, or 1000 of $2 per pip, which is fairly typical of new retail traders.
Therefore, if you traded 5 x $1 mini lots per day, it would take 400 days or over 13 months to turn over the equivalent of 200 lots at that rate! Coupled with that, some such brokers will have a clause that stipulates that there should not be a drawdown on the account of more than 20%. So, who is likely to ever see this bonus? Well, certainly none of the 70% of retail traders who statistically lose all of their deposited funds in the first six months. And of the other 30%, let’s say about 5% might be good enough to achieve the above criteria.
Because of the high turnover of retail traders, and the growing number of emerging brokers, there will always be similar offers from brokers going around to keep new traders coming onto their books, while the losers are going off. It’s a simple marketing ploy to try and mitigate client loss with new sign-ups.
But in real terms, the brokers are offering very little. Essentially, of the above examples, you do not get to keep the $25 or $50, and it means your trading leverage only allow you to trade a few cents per pip, and as for the $1000+ cash bonus, well it really is a commission or spread rebate in sheep’s clothing. But hey- it is advertised as a bonus, and if you can meet the criteria, it is certainly worth having. And so when we take out all these bells and whistles, what is left? Well, the following are the most important issues new traders should really be worrying about, and here are some questions that they should be asking their prospective broker:
Are they an ECN broker who passes trade orders on to third parties, or, will you be trading against the broker, which is what most spread betting firms do? Do they offer tight spreads and instant execution with low latency and low slippage? Do they charge a commission on top of their spreads? If yes, do these commissions, when added to the spread, equate to an average all-in spread of around $1 per pip for the major pairs, which is fairly typical of some of the better-known brokers? Do they offer customer support, which will respond immediately, and which is exactly what you would need in a crisis? You might also want to ask them who their liquidity providers are because the more there are, the better the liquidity the broker will have, and this will mean that these providers will have done their homework on the broker too. The number on thing that concerns us here at Forex.Academy is the enormous amount of turnover of retail traders, data from the US securities regulator for October shows that Interactive Brokers lost 30% or $5 million of retail FX funds in recent months, this can only mean that retail traders are losing money, fast.
Here at Forex.Academy, our message is clear. Learn how to be a professional trader, and ensure you are winning consistently. We have all the lessons to help you become the successful trader you deserve to be. And they are all freely available!