How forex brokers make money

Any novice trader choosing an intermediary though which to make deals is interested how forex brokers make money. The answer is simple – whenever a trader makes deals, regardless of whether they were profitable or not, he pays some money from each transaction to the broker. A spread is the amount of pips that has to be given to the broker as a commission. The amount of commission by trading tools is available at the broker’s site. There should be no haste when choosing among forex brokers types; at first it is important to get to know the level of commission of several different brokerages and to read reviews on brokers. You can not only choose lower commissions, but also an option of returning the spread amount. This can be done by opening an account at the official broker’s agent or partner. A partner who has drawn a client receives a fee from the broker and returns to the trader a part of the money spent on the spread. In such a chain everybody wins. To make the right choice refer to ratings (tops) of forex brokers, as they are compiled based on reviews and opinions of both experts and ordinary traders.

Leverage: a brilliant service offered by the brokers

Talking about how forex brokers make money, it is important to mention margin trading. Leverage is a classical operation of any bank (crediting at which securities are the collateral).

Example. You have disposable securities that a broker can sell at any time. He offers you a credit for $10,000, and, if the stock price rises by 30%, you receive $3,000 and as much again from the loan (minus interest).

This sounds tempting, but if the stock falls by 30%, you lose two times $3,000 and the interest. Of $10,000 there remains less than $4,000. At that the broker’s earnings increase significantly. If the leverage is 1:2 and you have $10,000, the broker will give you $20,000 more. If the market movement is 50% unfavorable, you will lose your money, and the brokerage commission will double.

Shorts: another brokerage service

Short sale is yet another brilliant brokerage service that brings them good profit.

Example. You assume that in the near future the price of certain stocks will go down. This means you will be selling. However, the broker will teach you that it is possible to earn not only on the increase, but also on the fall, and will offer these shares as a loan for a certain time.

You sell the shares, and when the price goes down, will buy them cheaper. Your winning is the difference of which the broker will certainly deduct their interest. But, if you have made a mistake and the shares go up instead of falling, to repay the debt you will have to buy them at a higher price. Your money is what guarantees the loan repayment.

Related Columns

The Worlds three Most Successful Forex Traders Ever

Whether you are new to trading Forex or an old hand at the currency markets, you are likely to share one key aspiration. One way to improve is to learn by example and to look at some of the most successful Forex traders in the world. In this article, you will learn about what the top Forex traders in the world have in common and how those strengths helped them to make huge profits. While you may have read about the statistics thrown around; suggesting that the ratio of successful Forex traders to unsuccessful ones is small. There are at least a couple of reasons...

The Pound Tumbles in delayed reaction

The Pound Tumbles in Delayed Reaction, as May gets Green Light from Parliament to Trigger Article 50. This has, so far, been a mixed week of good and bad news for Theresa May. The good news was that on Monday of this week she received the green light from parliament to trigger Article 50. The bad news was, however, very bad news indeed, after Scottish First Minister Nicola Sturgeon signalled the start of a legal process for an independence referendum. This quickly resulted in the pound tumbling against all of its Group-of-10 peer currencies...


Forex Awards live updates from iFX EXPO Asia 2017

Here today at iFX EXPO Asia 2017, taking place in Hong Kong, FX industry experts are gathered to answer burning questions. How to market electronic brokerage and succeed in China? What are the hottest trends in todays Forex trading when it comes to technology? How to deal with new regulatory demands imposed on forex brokers? What new opportunities does MetaTrader 5 give to FX business operation? These and many other hottest issues are now being discussed by forex industry professionals at the Hong Kong Exhibition...

Will 2017 be the Beginning of the End of the EU?

The UK is not going to leave the European Union. Of course, not. We are inextricably wound up with Europe. In terms of culture, history and geography, we are a European nation. Nick Clegg, British Liberal Democrat politician - 2010 to 2015 in the David Cameron coalition ministry. A special report on the current state of the EU and what could be in store, for the EU in 2017 - post Brexit and Trump and the rise of the EU populist movements, by Victor Romain, for Invest Ratings....


A Roundup of the Main Business News Headlines of 2016

Our moral economy went bankrupt long before our financial one. - Steve Maraboli, Unapologetically You: Reflections on Life and the Human Experience. A lot of crazy things have happened this year and I believe that I could be right in saying that many years down the road from now - many people are going to be talking about 2016. The history books will surely be looking back at 2016 in awe. This year also saw in some of the most surprising and, at the same time disruptive and seismic changes in the world of politics...

Warren Buffet backs low cost funds

EFTS - Exchange Traded Funds are quickly becoming the darlings of the financial world and are, in fact, even coming to dominate it. What used to be a relatively niche sector, is now rapidly becoming one of the biggest games in town - they now even have Warren Buffet blessing and seal of approval. Trading in Apple shares is worth over 3 billion pounds a day. However, that pales into insignificance with the 14 billion pounds, which is traded daily in the shares of State Street SPDR 500 fund. Today, the buying and selling of ETF accounts for almost 90%...