The Forex market is a large-scale platform for currency speculation. When it comes to working in the financial markets, the focus is usually on private traders. Experienced traders make money from fluctuations in quotes, earning thousands of dollars a month.
However, in the foreign exchange market, profit is made not only by private actors, but also by Forex brokers – intermediary companies that provide traders with access to world financial markets. At first glance, mediation on the currency exchange does not bring tangible income, but this is not the case. What does the income of Forex brokers consist of?
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Spread and commissions
Spread is an obvious part of brokerage income. Each trader pays a small fee to the broker to bring the trade to the market. The fee depends on the lot size: from 40 cents per micro lot to $40 per standard lot for major currency pairs. Tens of thousands of traders use the services of a reputable brokerage company every day. And if at least a thousand traders open 1 position each with a standard lot, the broker’s daily income will exceed $40,000.
Serious companies that bring transactions to the interbank market charge a commission for their services. There are two types of commissions:
- fixed fee – the broker charges the client a certain amount for carrying out an operation with any lot;
- relative fee – the broker charges the trader an amount that depends on the volume of the trading position.
Brokers without a spread receive FX commissions depending on the volume of transactions performed during the reporting period. When trading on an ECN account, the broker can charge both a commission and a spread.
Consulting and training
Most large brokerage firms have their own trading schools, training courses, or paid webinars. Forex forums gather traders and potential clients, where broker representatives sell educational materials: from brochures and printed books to multi-disc publications.
Entry-level courses are relatively cheap, while more “advanced” information costs market players a pretty penny. It is profitable for conscientious brokers to educate their clients in a quality manner – a competent trader trades better and in large volumes, accordingly, the transaction fee increases and the brokerage office receives more income.
Trading on the currency exchange
Most brokers generate income in the same way as their clients. Brokers actively trade on the Forex market using their own funds: the company always employs professional traders who conduct extremely cautious trading based on the minimum leverage. However, compared to other ways that we have mentioned in our article, this one is a rare way to earn additional money.
Financial Batting
Many Forex brokers keep up with the popular trend and offer their clients binary options trading services. Market players place bets on the outcome of the behavior of quotes for a given asset. The traditional payout for Put / Call options is 85% of the bet amount. However, the broker always charges a service fee of 14% and the trader’s profit is reduced to 71%. Losing players lose 85-100% of their bet. Binary options are popular today among a wide audience, inexperienced in the nuances of working in the financial markets, so most of the bets on the binary market are played in favor of the broker.
Social trading
Copying trades is another source of income for Forex brokers. Experienced leader traders recruit followers who copy the mentor’s decisions and make (or lose money) with him. All participants in the process make a profit on social trading:
- the leader receives a certain share (15-30%) of the funds earned by subscribers;
- followers copy the successful trading of a trading guru, making profits and invaluable experience;
- the broker receives income in the form of a subscription fee for the leader.
Social trading draws a lot of similarities with copy-trading, where users also copy trades from prominent traders.
Thus, an honest broker has several sources of income and is interested in mutually beneficial cooperation with private traders.
