A regular trader would visit quite a few FX sites, like ForexCrunch, to get the the most recent market updates, learn more about possible moves of the currency pairs and find useful information to enhance his decisions.
It is often possible to encounter quite a few broker advertisements that promote a certain deposit bonus campaign while browsing FX sites. In this article we will examine what a Forex bonus is, its strong and weak points, and ultimately, how to use it to your advantage.
What are Forex bonuses?
Brokers often try to fight for the clients and it is not always possible to get people to move from one brokerage to another just by offering a superior execution technology and lower spreads. This is why brokers try to reward the traders with some extra funds.
Typically a broker would kick-back from 20% to 80% of the spreads and commissions once a trader fulfils a certain volume. In other words, Forex bonuses are nothing more than regular spread rebates, although the compensation tends to be larger and is paid upon the fulfilment of certain conditions.
Strong points
A monetary benefit is the main reason why people deposit with the broker that gives bonuses. Airlines often compensate their clients with miles, and this keeps the clients with the same carrier for years. Same occurs in the FX industry. Traders are happy to get the bonuses and brokers are happy to give back a share of their earnings in exchange for traders’ loyalty.
Apart from that, many brokers actually give the bonuses upfront. This means that once a trader deposits 1,000 USD, he is rewarded with 200 USD straight away. Such a practice allows traders to have a larger margin or simply trade with the capital that they don’t fully own. Hence, it is possible to open larger orders and achieve higher profits.
Weak points
Usually the bonuses are as weak as the conditions behind them. Sometimes it is simply not possible to withdraw the bonus funds, even after a decent volume has been filled, hence the only advantage that the bonus brings is the increased leverage which can set a margin call level to 0%. This is not very useful.
Another disadvantage is found in such conditions that prohibit withdrawals unless a certain condition has been met. This is a very uncommon practice, yet it happens. Usually a trader should never choose a Forex bonus that limits the withdrawals.
How to use a Forex bonus to your advantage?
Ideally, your choice of the broker should not be influenced by the available promotions. However, if you don’t have an account with the broker yet, nowadays there are plenty great brokers that offers bonuses, so picking up one should not be hard.
So, once you have gotten a bonus, the main idea is to be able to withdraw it. A rule of thumb is to see the volume requirement and divide it by the amount of working days left until the volume completion deadline. For example, if you have to complete 25 lots within 20 weeks, you would need to complete a 1.25 lots per week or 0.25 lots per day. However, it is strongly recommended to achieve an average daily turnover that is at least 25% larger, hence around 0.32 lots.
Following such a plan on a daily volume would allow you to withdraw your bonus. Yet it is important to note that you should treat the bonus as a secondary income, trading result should always come first.
Post by Konstantin Rabin of Forex Bonus Lab