It isn’t difficult to find attractive no deposit bonuses from forex brokers, though are they worth considering? Such promotions allow new clients to ‘test-drive’ a broker’s platform and execution with no financial obligation. They are also a viable avenue of newer traders leaving the demo phase to trade a live market without real money from their market. Like any offer, such offers may not be worthwhile for everyone.
What is a no deposit bonus?
A no deposit bonus is a promotional offer from a forex broker affording new clients with a real money-funded account without any financial obligation. The size of these accounts ranges from $5 to even $1,000.
For clients switching over to a new broker or, more pertinently, those leaving the demo stage and into the live markets, it can be a great approach to ‘get their feet wet.’
Additionally, one can experience a broker’s trading platform and execution in a live account without having to commit anything out of their pockets. In a normal situation, making this commitment with another broker is never an easy decision.
A no deposit promotion aims to solve this challenge somewhat. All that the broker typically requires from the client is a quick registration and a verification of their personal information according to KYC (Know Your Customer) standards.
In most cases, they can be up and running within less than a day or, ideally, a few hours. Like with any promotion, traders must be aware of the terms and conditions and, more importantly, whether they are realistic according to their trading skills and experience.
Pros and cons of no deposit bonuses
Unfortunately, there is no free lunch, so to speak, in forex because these offers do have some drawbacks. It’s also essential for traders to ensure a broker is regulated since scams can exist through this promotion.
- The biggest attraction of no deposit bonuses is there is generally no financial commitment. New traders who’ve perhaps never traded live before or those looking for an unknown broker can experience real trading risk-free with no obligation of actual money.
- Expanding from the previous point, such offers can be beneficial, particularly for those who’ve come out of the demo stage. It can be a handy method to prevent the unexpected losses most traders inevitably experience when going from demo to live due to the financial commitment.
A trader treats the account like real money, which is very hard to do on demo. With a practice account, it’s simple just to reset the figures, though, in a live scenario, it is much more severe since we don’t have this luxury.
A trader can forfeit the promotion if they lose the entire trading account. Therefore, one encounters similar repercussions as if they were trading their own money.
- Unlike a demo account, a trader gets to feel a broker’s true execution, like whether it experiences a lot of slippages, gaps, etc. For the most part, demo accounts are largely simulations that do not accurately reflect real market conditions. These are elements that one cannot ‘feel’ on a practice account.
- Compared to using your own money, there is no freedom with these offers because nearly all bonuses have requirements like meeting unreasonable high lot sizes within a defined period, further deposits, and other rigmarole.
Also, there is a limited profit potential because brokers will eventually desire a trader that trades their own money rather than theirs.
- Virtually all bonus offers are standard accounts, meaning they do not allow smaller positions. Therefore, from a risk perspective, one has to trade a slightly larger order disproportionate to the funds available.
For example, as most no deposit bonuses are little, if a broker offered $30 on a standard trading account, each position can only start from 0.01. Depending on the pair, the margin of this size can easily be $2 or even $5, which is about 7 to 17% of the entire account.
- Most no deposit offers are relatively small in size. While some offer $1,000 or $2,000, as attractive as this might seem, there are a few terms and conditions that are not beneficial to traders.
- Fair no deposit offers are few and far between.
A better alternative?
These promotions are mainly a temporary situation for newer traders transitioning from the demo stage or those who are cash-strapped. Despite these advantages, is there a better alternative allowing more freedom?
One of the first options is trading a cent or nano account where traders can open nano lots (a position below a micro lot or orders starting from 0.001). While similar to no deposit bonuses, such accounts aren’t that prevalent, though few reputable names offer them who accept deposits starting from $1.
Instead of settling for a $30 no deposit bonus, someone can save up this amount (or more), have the luxury of trading smaller lots, and have the freedom of not being bound by terms and conditions.
The second choice is a new trader can continue demo-trading while saving up larger funds for a standard trading account that will permit them to trade bigger positions.
It isn’t to say that a no deposit offer is entirely useless because some people who’ve never traded live before may still have fears of committing their hard-earned money into the markets.
Furthermore, others may not be able to afford to fund their own account but would, in the meantime, like to encounter a real market and perhaps have the opportunity of some profit. So, with some exceptions, this offer may be the safest option.
However, at some eventual point, this is inevitable because part of being a trader means having to deal with the risk of using your hard-earned money to speculate. If we objectively look at the pros and cons, it is probably better in the long run to either trade and grow a small account using one’s actual funds or save up enough disposable income to invest.