As a type of bonus you can get from trading, the benefits of forex rebates are undeniable. However, we should also be cautious of the risks.

In a broad sense, "rebate" can be defined as a partial return of the money you originally paid. Forex rebates do not necessarily come in the form of cash in trading. Forex rebates, or forex cashback, are programs in which brokers or rebate providers give commissions to traders for every transaction they make, regardless of the trading outcome. In other words, if you open more (and bigger) positions, you will earn higher rebates even if you lose the trades.

Using Forex Rebates the Right Way

 

How to Use Forex Rebate Programs

To join a Forex rebate program, you only need to link your trading account, new or existing, to a Forex rebate provider. Your broker will pay a commission to the rebate provider for every transaction you make. This provider, in turn, will share their commission with you as a rebate. The method of rebate payments may vary amongst brokers and providers. Some brokers even launch their rebate programs, so the involvement of providers will not be necessary. Below we will cover the mechanisms of how providers pay forex rebates.

 

How Forex Rebates Are Paid

Forex rebates can be paid daily, weekly, or monthly. For daily rebates, brokers usually provide an auto rebate feature. Still, this option may not be available in some brokers.

On the other hand, weekly and monthly rebates are manually handled by rebate providers where. They pay clients on a predetermined date. The payment methods may vary from e-wallets such as Paypal, Skrill, etc., to more conventionally bank wire transfers.

As mentioned earlier, direct payments are not the only means of rebating traders. Brokers may also rebate traders by reducing spreads or commissions in upcoming trades.

 

How Forex Rebates Are Calculated

In general, there are 3 different mechanisms to calculate forex rebates:

  1. In pips: The majority of brokers and providers give rebates in pips. The amount is typically from 0.5 to 1.5 pips per transaction for major pairs such as EUR/USD, GBP/USD, etc. Whereas for minor pairs, the rebates tend to be higher.

  2. In lots: Lots may also be the standard for calculating forex rebates. The measuring unit can be pips or currencies such as USD or EUR. The calculation is much simpler if done in currencies, such as $5 per lot, $ 7$ per lot, $ 10$ per lot, etc. For example, if you trade 10 lots monthly, your monthly rebates will amount to $50. While this number is very attractive, traders whose positions are less than 1 lot may not be benefitted from this scheme.

  3. In percentage: Forex rebates calculated in percentage are more flexible than the aforementioned two since your rebates are always fixed to the rebate providers' commission from the brokers. For example, rebates of 50% mean you will always be rebated 50% of the brokers' commission. Remember that if the commission from the broker is relatively small, you will earn low rebates.

 

Pros and Cons of Forex Rebates

Other than the fact that forex rebates provide extra cash for traders, they are also beneficial for other reasons such as:

 

Forex Rebates are Easier to Earn

No minimum deposit is required, and they do not affect the forex market significantly. That means forex rebates are easily accessible for most traders compared to other bonuses. That said, it does not mean traders shouldn't try other broker bonuses besides rebates. After all, all those bonuses can further their means in the forex market.

 

Forex Rebates Reduce Trading Costs

It is proven that forex rebates can reduce your trading cost to some degree. They apply to every trading outcome, including losing trades. Costs are one factor that traders should scrutinize. A win by a very narrow margin can overall be a loss when the transaction cost is factored in. So, reduced costs will increase your profits and minimize your losses.

 

Forex Rebates are Suitable for Active Traders

By participating in a forex rebate program, active traders can earn a portion of their trading costs back, significantly enhancing their overall profitability. This benefit is particularly advantageous for active traders who execute a high volume of trades, as they can potentially earn substantial rebates over time. Thus, active traders can maximize their potential returns and optimize their trading activities by utilizing forex rebates.

 

Forex Rebates Provide Extra Support for Traders.

Like brokers, rebate providers like to attract and keep as many clients as possible. Therefore, they may offer assistance and support in their limited capacity to help clients with their questions and issues. Ultimately, forex rebates provide a layer of support to traders, empowering them to navigate the market with increased confidence and resources.

However, for every benefit forex rebates offer, some risks are associated with them. This is why some traders are still doubtful about the potential benefits of forex rebate programs. Below we will discuss three factors that sway traders' opinions on forex rebates:

 

Traders Make a Habit of Underestimating the Market

The ease of earning forex rebates often negatively encourages traders to approach the market carelessly. Since forex rebates can be earned regardless of the trading outcome, winning trades may cease to be the main priority. Some think, "Why should I trouble myself with analyzing the market and undertaking a risk management strategy? Even when I lose trades, I will still earn rebates." This is the kind of perception traders often have when signing up for forex rebate programs.

 

Forex Rebates Demotivate Traders

While forex rebates provide financial incentives, some argue that focusing on earning rebates might shift traders' attention away from their primary goal of achieving consistent profitability. The lure of cashback may lead traders to prioritize higher trading volume rather than quality trading decisions, potentially leading to impulsive or reckless trading behavior. This might lead to traders not spending extra effort to make successful trades.

 

Forex Rebates Lead to Excessive Trades

The mechanism of forex rebates paid for every position or (in some cases) lot often misleads traders into excessively adding more transactions so that they can collect the rebates. Consequently, traders open positions arbitrarily, and little thought is given to it. In other words, they are motivated to enter the market without proper analysis to pile up rebates. In the long run, this habit will only destroy their trading accounts.

In retrospect, the negative effects of forex rebates do not originate from the program's shortcomings but rather the traders' perception and habitual response to rebates' benefits. Therefore, it is your task as a trader to prevent those risks.

 

How to Properly Use Forex Rebates

To avoid bad influences and optimize the benefits of forex rebates, we recommend that you apply these tips:

 

1. Focus on generating money from trading profits, not forex rebates

The essence of forex trading is to gain profits from the change in price movements. You must assert this principle to yourself to be free of the negative impacts of forex rebates. It is true that, eventually, rebates will be added to your profit/loss calculation. However, do not factor them in for your own sake when calculating your trading target.

Stay focused on making targets solely based on the market opportunity, not on adding forex rebates. Consider the rebates only as extra income or merely as "sweeteners."

 

2. Run your trading plan consistently

The trading plan is a necessity for every trader. What sets professional forex traders apart from amateurs is the implementation of trading plans. So, if you have created a trading plan, make sure you run this plan consistently. Do not let rebates dictate your move. If you are a swing trader, don't get tempted to switch to scalping simply because of rebates. In the end, self-discipline in applying trading plans will help keep you away from the psychological risks of forex rebates.

 

3. Do not be obsessed with pursuing rebates

Again, forex rebates are not the main objective of your trades. No matter how high the rebates are, in the end, they will only contribute as extra income. Profits from the forex market are where the real money is, so you should take the market more seriously. If you ever become obsessed with rebates and disregard where the profits come from, you better not expect yourself to become a full-time trader.

 

Are Forex Rebates Legitimate?

Brokers pay legitimate forex rebate providers to introduce new clients to them. However, just like brokers, scam rebate providers also exist. The most common scam is to mark up the spreads and commissions so that they can offer unusually high rebates. This operation is worsened when their partner brokers allow it to happen. Many scams do not even pay their clients. Thus, separating scammers from reliable providers is important as the business model is legitimate.

In the end, forex rebates help relieve traders of transaction costs that can sometimes be expensive. Nevertheless, some traders may unconsciously focus on claiming rebates instead of winning profits. This is especially due to their desire to make quick returns. Remember, forex rebates can be a bad influence if your perception is not in the right place. That's why looking after your psychological state is crucial to ensure a long-running account in forex trading.