Forex Broker Offers: Reading the Small Print

Filed under: Learn Forex Trading |

Screen shot 2013-04-24 at 10.36.33If you have ever looked for a forex broker online, then you have probably seen a whole host of offers and bonuses for signing up. However, these offers usually come with a catch, so make sure that you read the small print. For example, a broker may offer a ‘10% cash bonus on first deposit’. This looks very attractive, because if you deposit $1000, then it seems like you get $100 for free, and if you deposit $10,000, then it seems like you get $1000 for free! This might be enough to talk most people in to signing up for an account – which is exactly what the broker wants. However, a typical condition to such an offer would be to trade 50 lots in a three-month period. This might not mean a lot to a beginner to the forex markets, but I can tell you, that this is a lot of trading.

 

To put this into perspective, 1 lot is roughly equal to $100,000; so fifty lots equal $5,000,000. However, a typical leverage agreement between client and broker will be 100:1, so that means you only have to put forward a cumulative $50,000 of your own money. Over 50 trades, you will need a bank of over $1000 per trade, and an average of 16-17 trades per month over the three months, which of course is more than doable. However, in order to trade 1 lot per trade, you will have to either have very tight stop losses or you will be risking hundreds of dollars per trade, or you will have to trade less than 1 lot per trade. In summary, it would be very difficult for a beginner trader to trade 50 lots in a three month period while maintaining moderate risk levels, and as such, this kind of offer would not be useful to a beginner, but it could be of great use to more experienced traders with a significant trading bank.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>