If you visit any forex brokerage platform, you will not miss the warning that trading forex and CFDs is extremely risky, and losses can exceed initial deposits. This is especially true for beginners in the trade. In as much as this market provides a huge potential for profit, making a loss during your trading career is inevitable. So how best can one capitalize on this fact of life? Through forex rebates, you can get a portion of your investment refunded to you, even if your trade culminated in a loss.
How do forex rebates work?
Usually, the process to obtain these rebates involves a third party known as the rebates provider. This provider will typically be working in liaison with your broker. As you’re well aware, brokers charge commissions and spread to their clients, which is how they stay in business. The rebates provider usually brings in clients to the broker, and in return, the broker pays them a percentage of the fees they obtain from the client. This provider, in turn, refunds this percentage to the client, essentially paying the trader for each trade they execute.
You can think of it as a credit card rewards program. For instance, you’re using a MasterCard credit card. Usually, for every purchase you make using your credit card, the vendor you’re buying from will be charged about a 3% transaction fee by MasterCard. If you’re enrolled in their rewards program, they kick back about 1% to you, the credit card holder, out of the transaction fees charged to the vendor.
Forex rebates payment methods
Since these rebates come from a third-party provider as opposed to your broker, the methods of payment may vary from one provider to the next. In the same way, the frequency of these payouts may also vary. Some providers will let your rebates accumulate and pay you the total every month. This may be through Skrill, Neteller, WebMoney, PayPal, or even bank transfers.
Other providers will liaise with your broker to get them to offer you reduced spreads and commissions. Brokers such as IC Markets and Global Prime are known for embracing this model. Another common model is to have the rebates paid directly to your brokerage account. In such a case, these rebates will often reflect on your equity within a week of closing your trades. This is the model used by most renowned brokers such as Pepperstone, XM, and HF Markets.
Pros and cons of forex rebate programs
Pros
- In essence, you get paid simply for making trades.
- Rebates increase the profitability of your trades. If you’ve made a profit, rebates add to your profit margin. If you’ve made a loss, you get some of your money back, which reduces the impact of the loss on your equity.
- Some brokers will offer bonuses to clients just for signing up with them. This way, you can access more trading capital by signing up for the rebates program.
- Rebate programs are compatible with most brokers. If you already have a broker, you can sign up with a rebates provider that is compatible with your broker and start earning cashback.
- It is well suited for beginners who are prone to losses in the forex trade.
- Joining rebate programs is usually free. They are used as incentives to sign up to brokerages; thus, they do not charge anything to the trader.
- The more trades you close, the more you earn in rebates.
Cons
- Rebates can make you throw caution to the wind when it comes to ensuring your trades are successful. Since you stand to earn no matter the outcome of your trade, you may find yourself becoming complacent.
- Rebates may hinder effective risk management. Instead of being objective with the risk you take, you may find yourself taking unnecessarily huge risks since rebates will payout anyway.
- They may coerce you to trade even when market conditions are not ideal. Rebates increase with the frequency of your trades, so they may incentivize you into entering unnecessary trades.
How legitimate are forex rebates providers?
As aforementioned, rebates providers are usually third parties that essentially bring clients to brokers. However, they do not have access to your trading account or the funds in your brokerage account. Being this far removed ensures that these providers cannot defraud you by moving your funds or trading on your behalf.
However, there are still unscrupulous providers in the market. The most common scam these providers pull is marking up the spreads or commissions charged by brokers. In effect, this will earn you higher rebates, but you’ll be paying higher fees for each trade. Other providers may fail to pay out these rebates on time, while others will outright not pay their clients.
Therefore, before settling on any one provider, it is prudent to do your due diligence. You may visit their websites and read their terms and conditions, such as how often they payout and the payment methods they offer. Further, you may check out reviews by other traders who have used their service, as these may give you some insight into any problems you’re likely to face in their employ.
Conclusion
Forex rebates are a cashback program that is offered to traders who are enrolled with rebates providers. These providers are usually third parties who work with brokers to bring clients into their service. In return, they are paid a percentage of the fees charged to the clients, which they, in turn, kick back to the traders. This way, traders can earn from each trade they make, regardless of whether it culminates in profit or loss.
Though these providers will typically have no access to your trading account, there are still ways to get scammed by them. These include the providers hiking broker spreads and commissions or failing to pay out the rebates they owe. Therefore, it is important to do extensive research before investing in a forex rebates provider.