How do Forex Brokers get benefits?This is the answer!
As you already know when going to trade on the forex market, you need a forex broker who acts as your intermediary to enter the market. Through brokers, you can easily buy and sell your own currency to benefit from price increases.
However, there is one unanswered question.
Where do forex brokers make a profit?
This time we will discuss the sources of benefits that forex brokers will get. In order to better understand more clearly about it, see the full discussion below.
You Must Understand the Commission Structure
Broadly speaking, there are at least 3 forms of commissions that will be used by forex brokers in the market. The 3 forms of commission include fixed spreads, variable spreads, and commissions based on spread percentage.
In order for you to understand well what is a spread, let’s look at the following example. For example there is EUR / USD – 1.4952-1.4955 from the data there is a spread of 3 pips. The difference comes from the offer price of 1.4952 with a request price of 1.4955.
When you choose a forex broker offering variable or variable spreads, you can get a spread that is appropriate to the actual market conditions. Spreads range from 1.5 pips to 5 pips and this depends on the pair of eyes being traded.
With the explanation above, we can understand that spread is a reward that you need to pay when going to buy or sell orders. With the difference between demand and supply, forex brokers can earn income. The offer price is a price that will be received when you will sell the currency. On the other hand, the price request is the price you need to pay when buying a currency. Spread brokers are the difference between the two types between the bid and demand prices that occur.
In addition to using the method above, there are several ways that forex brokers can make profits.
Here are some ways that Forex brokers can make profits
1.Getting Profits When Traders Get Profit
The first way is forex brokers who generate profits from the profit earned forex traders. This may confuse you, how can a forex broker benefit when a trader makes a profit. But, this is the reality and the above can you see in the existing forex brokers.
Forex brokers with the type above will let their members use various techniques to be able to get the benefits that will be obtained. They are also not reluctant to provide various forex signals that can be accessed by their members and this will certainly greatly benefit traders.
The type of forex broker as above is highly recommended for you to choose. This is because, you can easily benefit when trading forex.
2. Forex Brokers who benefit from losing traders
The next type of forex broker is those who will benefit when traders get a loss in trading. If you are not careful, brokers with this type will try to keep you from losing so they can get a bigger profit.
3. Forex Brokers Who Benefit From Brokerage Companies
The next way is the forex broker who benefits from the commission given by the brokerage company. Forex brokers who run this system usually get smaller profits compared to the two types mentioned earlier.
In addition to the 3 types of forex brokers above, there are also forex brokers who benefit from the mark-up spread provided by banks or financial institutions.There are also forex brokers who sell trading software or EA (Expert Advisor) and various other services. By selling the software they can benefit to run their business.
There are even forex brokers who will get incentives from the liquidator, if they get the number of transactions that exceed the set target.
There are also forex brokers with ECN types who will get commissions from transactions made. Thus, they will try to increase the number of transactions in order to get greater income. They will continue to increase the number of clients and continue to offer new products.
You also have to be aware of forex dealers with city types. Brokers with this type will usually pay profit traders from the money they have and they try to make traders experience losses. The more traders who experience losses, the greater the profit potential they can get.
The cheating they often do includes connecting to servers that often experience interruptions or when you will take profits.
Understand the Difference Broker Dealer and Non-Dealer
1. Broker Dealer
The dealer broker was mentioned in the previous discussion. Dealer brokers or city brokers are brokers that make their own markets with their own conditions.
Broadly speaking, the dealer broker will benefit from the losses experienced by the traders. The defeat experienced by traders is a blessing from these forex brokers.
When traders make a profit, forex traders will pay the profits from the cash they own and not from the real market. Likewise, when a trader experiences a loss, they will get a lot of profit from it.
2. Non Dealer Dealer
The next type of broker is a non-dealer broker who has a role as an intermediary between dealer traders and the money market. Brokers of this type will benefit from traded spreads. So that the more transactions that occur, the more benefits they will get. Even though the trader experiences a loss or profit, the broker with this type can still make a profit from the commission.
How much will the broker get?
Generally around 2-3 pips for major currencies such as US, Euro, Yen and Pound.In addition to the secondary currency, they can get around 5 pips. Of the amount they get, not all of them become net benefits that will be obtained. Because, there are operating costs, greater brokerage commission fees, commission fees to agents, and others. If all these costs are paid, then the broker can get the profit he will get.
That is the various ways that become a source of income for forex brokers that you don’t know about. Hopefully the information presented above can provide many benefits for you all.