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

Top Gambling Expos

The gambling world is going through a period of change. On the one hand, the regulators are introducing new control measures, on the other - the operators turn to the online environment trying to attract Generation Y players...

Top 20+ Sites to Buy Bitcoin & Cryptocurrency

When it comes to finding the best bitcoin exchange things are not very easy. Why is this so? Simply because many of the best sites to buy bitcoin are rather recently online...

Best Bitcoin Exchanges in 2017

Coinbase combine an attractive interface, a great site to get bitcoins with a debit card, and multiple online wallets for your digital currency. Over 4,800,000 users are signed up, including 45,000 merchants...

Missing Link in Crypto Trading

Liquidity is the missing link in the Blockchain-powered crypto economy. Currently, over 100 active cryptocoin exchanges with a daily volume of $1.8 bln divide the market in Bitcoin, Ethereum...


Top Ten Financial Events for October 2017

The 33rd CFO Summit will be running this year October 8-10 in Irving, Texas. Do not miss the opportunity to meet face-to-face with CFOs from the largest organizations across...

Markets Analyst Sees Bitcoin Hitting $20,000

Bitcoin Forecast: Stock Markets Analyst Sees Bitcoin Hitting $20,000 within Three Years. Truth be told, Moas predicts that bitcoin's market top will reach as much as $2 trillion...

7 Do's and Don'ts For Any Forex Trader

Many experienced and beginner traders (more than you would imagine) don't get the above. They are chasing the price in attempt to not miss a single pip of the move...

How Not to Become a Victim of Forex Fraud

There's a saying among swindlers that it's not the scam that counts, it's the sell. Judging from the number of arcane and often outlandish schemes that have been...


Trading in Crypto Currencies

Ignore Biased Sources. These are where pump and dump schemes and other unscrupulous behaviour happen in real time. Many people who post on websites that cater to crypto traders are fishing for...