It’s all over…brokers giving forex bonuses, but here’s why you shouldn’t take them. Some brokers advertise great bonuses when you open a new account. They can be pretty enticing, but you have to read the fine print before signing on the dotted line! # First, it’s important to understand that these offers are only good for opening accounts. If you close your account within six months of opening, you will or might be charged a fee. They usually start by offering a match bonus. They will double your money. You make a $300 deposit, and they will give you another $300 in cash.
Have you seen any of them? It’s tempting to take advantage of this “free money” offer. After all, the extra cash will help your new trading job get off to a good start.
Don’t take advantage of the forex brokers with deposit bonus incentive. There are a number of causes behind this.
Do Not Accept the Forex Broker Bonus – Withdrawal Problems
The biggest reason not to accept a forex broker incentive is because it will almost certainly result in withdrawal problems.
Assume you deposit $1,000 in a forex account and receive a $200 bonus (see Day Trading with $1,000 or Less). While this provides you with $1200 in trading money, you cannot remove it. In example, even if you have $1200 in your account, the forex broker is unlikely to enable you to withdraw $300 for emergency costs. Why? Because their money is now mingled in with yours. They have an incentive to keep your money in the account since it protects theirs.
What if you wish to change brokers and go to withdraw your funds? You are obligated to stay because of the bonus you took.
The solely option to withdraw the bonus or any of your individual cash is to commerce sufficient in order that your complete foreign exchange bonus is “released” to you. Typically, you must exchange $10,000 for every $1 of the incentive (read the fine print, bonus terms may vary). So, in order to obtain that $200, you must exchange $2,000,000 in money. The rules of forex bonuses differ, but the bottom line is that you must trade a lot, regardless of how it is organized. Some brokers allow withdrawals while in the “bonus accumulation” phase, however you frequently lose the bonus accrued, or the bonus is prorated to the withdrawal amount (this is fair, but we still have other issues). This leads us to the next reason you should not accept a forex broker offer.
The Forex Broker Bonus Isn’t Worth Anything
Consider the preceding statement for a moment. “You must exchange $10,000 for each $1 of the bonus.” This assertion seems to be widespread all through the websites examined (albeit not all of them), however in some circumstances, up to $100,000 must be transferred to release only $1 of the bonus!
If the EURUSD moves 1 pip when you’re holding a small lot ($10,000 in currency), it translates to a $1 rise or decrease in your account equity, depending on whether the trade moves in your favor or not. In practice, the forex bonus is only worth 1 pip ($1) each mini lot trade. When you think about it, that amounts to nothing.
Is it really worth the bother to make $1 per micro lot trade in light of the anticipated withdrawal issues? A gain of 20 pips on the actual (1 mini lot) trade results in a gain of $20. Because most rookie traders aren’t full-time traders, they’ll swing trade, hoping to benefit from positions by 100 pips or more. If you make 120 pips on a trade, you will make $120; if you lose 120 pips, you will lose $120. That $1 bonus per $10,000 traded begins to appear trivial.
Thinking about this small sum is likely to encourage you to trade more frequently, taking low-quality trades. As a result, not only is the bonus worthless, but it is also likely to have a negative impact on your trade.
The Forex Bonus is Designed for New or Low-Capital Traders
Let us continue with the previous point. Forex broker incentives are typically targeted at beginning traders or traders with little sums of cash, typically depositing $5,000 or less, and frequently $1,000 or less. Even with leverage, it would take most merchants (who aren’t full-time) a very long time to commerce $2,000,000 with a view to withdraw (their very own funds and) their $200 bonus, as shown in our example above.
If you limit your risk and don’t risk more than 1% of your account balance on any one trade, you can risk $12 each trade on a $1,000 account ($1200 with the bonus). If you’re trading a tiny lot, that means you should only take deals with a risk of 12 pip or less (difference between entry price and stop loss order). You must complete 200 such trades in order to receive the incentive.
At one trade every day, that would take almost a full calendar year. Making a deal every other day means you’ll need to trade for two calendar years before you’ll be eligible for the bonus. What if you need to withdraw money at that time?
Is it as gorgeous as it sounded in the advertisement?
Now, should you open a $10,000 account and obtain a $200 bonus, it really works a bit of higher (see How Much Money Do I Need to Trade Forex?). Because you have a lot more of your own money, you can take greater positions while keeping your risk each trade under 1%. You get your bonus considerably faster, probably within a few months. However, the majority of traders that take advantage of this offer do not deposit $5,000 or $10,000; instead, they deposit $100 to $1000.
If you accept a $200 forex bonus on a $200 investment, you will very certainly never be able to withdraw your funds. It will take you so lengthy to commerce the required $2,000,000 in foreign money that the training curve in buying and selling can have already consumed the deposit.
So a bonus is nice if you deposit more? No!
Most Forex bonuses are provided by mediocre brokers or to inexperienced traders
Given the information presented above, you’re probably beginning to realize that a forex broker bonus is a bit of a sham. Not a fake one, but one that falls into an ethical gray area. Every broker who gives a forex bonus is aware of the above statistics, as well as the fact that the majority of traders will never be able to withdraw the bonus.
Furthermore, by offering the forex bonus, the forex broker ensures that the trader will be unable to withdraw money and will be obliged to trade with them until they become profitable, achieve the full bonus, or lose all of their capital.
What kinds of brokers don’t want you to withdraw your money? I’m not going to say… That’s all I’m saying.
Look into huge forex brokerages…
Oanda, Forex.com, FXCM, TDAmeritrade, IC-Markets, Interactive Brokers, and Saxo Bank are just a few examples.
Do you see the words “FREE MONEY!!!” all over their websites? They may offer a tighter spread, commission rebates, or commission-free trades to particularly busy traders, but “free money” is almost never dangled in front of a trader’s face. Something to consider.
NOT ALL FOREX BROKERS WHO OFFER CASH BONUSES ARE BAD (nor does the preceding statement endorse the brokers indicated)!
There are probably a lot of brokers out there that are extremely trustworthy, yet provide a cash bonus that may prevent you from withdrawing your assets. Read the small print and be wary of free “carrots” placed in front of you.
Other Difficulties Squeezed Into Legal Jargon
Here are a few other things to be aware of in the fine print. The statements below were copied and pasted from actual bonus terms and conditions on several forex broker websites:
The company maintains the right to cancel the [XX] percent bonus at any time, so we highly advise against using bonus funds to create your trading strategy. Because the bonus is the company’s property until the customer earns it by completing transactions of the complete volume indicated in clause [X]of the present agreement, the company is not liable for any repercussions of bonus cancellation, including stop out.
This defeats the purpose of the bonus. If they have the ability to revoke that bonus at any time, and you are trading based on the amount of capital in your account (your own capital plus the bonus), if the bonus is revoked by the broker, you may find yourself in trades that are far too large for the money remaining in the account (just your your capital now).
If the volume requirements are not satisfied and the account equity falls below the bonus amount, the bonus is automatically removed by the system. In other words, if the Cash Equity (Equity – Credit Bonus) falls to zero or below, all previously granted Credit Bonuses will be annulled and removed from the Client’s account. In these cases, the Company is not accountable for any consequences of the bonus cancellation, including, but not limited to, order(s) closure by Stop Out.
As previously stated, the money isn’t free, and if you don’t perform properly, that “free money” will be taken away. While the phrasing of terms varies from broker to broker, the underlying tone is the same: accepting the bonus exposes you to potential issues, it takes a lot of good trading for that bonus to become yours, there is no true free money, and it will not be there for you when you need it.
Final Word About Forex Broker Bonuses
There may be some fantastic bonuses out there with little strings attached. Such forex broker bonuses are uncommon. Because each case and broker is unique, read the fine print. However, as a general rule… Don’t accept it!