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, the term "rebate" can be defined as a partial return of the amount of money that you originally paid. In trading, forex rebates do not necessarily come in the form of cash money. Forex rebates, or also known as forex cashback, are basically programs in which brokers or rebates 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.
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. For every transaction you make, your broker will pay a commission to the rebate provider. 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 own 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 on a daily, weekly, or monthly basis. 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 we have 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:
- 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.
- In lots: Lots may also be the standard for calculating forex rebates. The measuring unit can be either pips or particular 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 in a month, then 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.
- 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 be always rebated 50% of the brokers' commission. Keep in mind that if the commission from the broker is relatively small, you will end up earning 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 compared to other bonuses . There is no requirement for minimum deposit and they do not affect the forex market in any significant way.
- Forex rebates reduce trading costs. They are applicable to every trading outcome including losing trades. Costs are one factor that should be scrutinized by traders. A win by a very narrow margin can overall be a loss when the transaction cost is factored in. So, reduced costs will not only increase your profits but also minimize your losses.
- Forex rebates are suitable for active traders. They can be amassed by traders who frequently open positions.
- Forex rebates providers extra support for traders. Just like brokers, rebates providers like to attract and keep clients as many as possible. Therefore, they may offer assistance and support in their limited capacity to help clients with their questions and issues.
However, for every benefit forex rebates offer, there are also some risks associated with them. This is why some traders are still doubtful with the potential benefits of forex rebates programs. Below we will discuss three factors that sway traders' opinion 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 in a careless manner. Since forex rebates can be earned regardless of the trading outcome, winning trades may cease to be the main priority. Some think to themselves, "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 that traders often have when they sign up for forex rebate programs.
- Forex rebates demotivate traders to increase their performance
For a similar reason to the abovementioned situation, traders do not bother to spend extra efforts to make successful trades. The main motivation may have shifted to the rebates earned at the end of each transaction.
- 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, just so they can collect the rebates. As the consequence, traders open positions arbitrarily, not much thought is given to it. In other words, they are motivated to enter the market without proper analysis just so they can 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 actually 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 if you want 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, for your own sake, do not factor them in when calculating your trading target.
Stay focus on making targets solely based on the market opportunity, not on the addition of forex rebates. Consider the rebates only as extra incomes 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 when it comes to 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 actually come from, you better not expect yourself to become a full-time trader.
Are Forex Rebates Legitimate?
Forex rebates providers have no control over your trading activities. Brokers do not allow rebates providers to perform any sort of actions on the platform, nor are they allowed to observe your trading activities such as opening and closing trades, moving stop loss, etc. Rebates providers have no access to your brokerage account except for profile information such as your name, account number, and in some cases, trading history.
Legitimate forex rebates providers are paid by brokers for introducing new clients to them. However, just like brokers, scam rebates 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, it is very important to separate scammers from reliable providers as the business model itself is legitimate.
In the end, forex rebates help relieve traders of transaction costs that can be expensive at times. Nevertheless, some traders may unconsciously shift their attention to 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 it is very important to look after your psychological state to ensure a long-running account in forex trading.