Traders And brokers are two things that can't be separated from each other.When we trade forex we can't go the markets directly, we need a mediator.
Traders And brokers are two things that can't be separated from each other. When we trade forex we can't go the markets directly, we need a mediator. The mediator is known as a broker, with their service we can trade and make profit easily.
But, have you ever questioned how forex broker makes money? This article will discuss this topic. Every broker has its own rules of taking fees from clients. By understanding how Forex brokers make their money can help you choose the right broker.
1. The Main Source Of Broker's Income Are Commission
Almost all broker forex in the world applying commission for their client. But every broker has its own rules. Some Forex brokers will charge a commission per trade, others will charge the spread between the bid/ask prices. The main way that Forex brokers make money is by keeping the spread of charging a set fee per round turn, some brokers even charge both.
About the spread, there are two kinds of spread, fixed or floating. The fixed spread means the price of the commission is fixed or never affected by the market's volatility. The floating spread is the opposite of the fixed ones.
When the broker uses floating spread, sometimes the commissions will be charged less or higher than usual. That case never happens to a forex broker that doesn't use fixed spread. Which one is better? That's totally on your preference, if you love the unstable commission for trading, a broker with floating spread will suit you. But, if you want to stable commissions broker with fixed spread is good for you.
2. Alternate Source Of Broker's Income
Sometimes brokers are not only taking profit from the commission. There is an alternative way the broker makes money from their clients, it comes to customer service and education. For example, some will offer in-depth analysis, signals, and even private educational classes and webinars for those who are willing to pay more or have a larger account.
This service help for beginner to understand about forex. If you are a pro trader who understands trading and proper money management techniques, these things are very rarely needed. But, nowadays almost all of the forex brokers don't use this way to make money, because service and educational programs serve as being additional free features from the broker for new traders.
3. Cheating Way
The last one is cheating way that done by unprofessional forex broker or we can call them as scam brokers. This kind of broker will take profit in illegal ways, using "stop-loss hunting", which means that they're using robots to manipulate the price and make. These tricks are used to make your open position trading hit the stop loss against your order.
Another broker's cheating way to make money is mark up spread. These tricks are usually applied by an ECN/STP broker. A legit ECN/STP broker has already got the profit for each client's order. But, the scam ECN/STP broker will mark up spread, they add more additional pips extra for each order.
This kind of broker must be avoided by all traders, they don't want to help you as a trader to make a profit. Otherwise, they will rob your money. Other than stop loss hunting and marking up spread, beware that a forex broker can cheat you in many other ways.