How Do Forex Brokers Make Money?

In the last decade, the online retail trading business grew exponentially. The more people had access to Internet and stable Internet connection, the more traders came to the Forex market.

Smartphones further amplified this trend. As a matter of fact, anyone with a smartphone connected to the Internet can easily trade the Forex market.

All brokers have a mobile trading platform or offer the MetaTrader one. However, the more traders come to the Forex market, the stiffer the competition among forex brokers becomes.

As such, brokers try to differentiate themselves in various ways. The simplest and more accurate way to look at a brokerage house is to understand how it makes its money.

Brokerage Houses Business Model

There are different ways that a brokerage house uses to make its money. It depends a lot on the way the business is organized. From this point of view, Forex brokers are dealing desks and non-dealing desks businesses.

Dealing Desks or Market Makers

When a broker is a market maker or a dealing desk entity, it effectively creates a market for its clients. In other words, if the clients buy or sell a currency pair, they don’t do that effectively on the interbank market.

These brokers use advanced software to mirror the Forex market moves. Then, they simply trade in the opposite way than their clients.

While this is not illegal, is unethical. But, brokers do have a point in doing that.

Statistically, over ninety percent of the retail traders lose their first deposit. Even after that, the chances will stay against the retail traders.

As such, brokers have bigger chances to profit from this. A business modeled as a market maker is a profitable one. As a matter of fact, there are big brokers, good ones, that run businesses like this.

Again, the issue is an ethical one.

Non-Dealing Desks

Non-dealing desk brokers are closer to the true nature of a brokerage house. However, not all of them.

Technological advances lead to the costs for accessing the interbank market liquidity to drop. Brokers used the STP (Straight Through Processing) and ECN (Electronic Communication Network) to set up their businesses properly.

A pure STP or ECN broker will route all their clients, orders to the liquidity provider/providers. There, the best quote wins.

For this, the broker charges a commission. And, a spread.

However, this is not as profitable a business as market making. As such, most of these “non-dealing desks” are, in fact, hybrid ones.

Namely, they route “some” of their clients’ orders, while keeping other in-house. They follow both a market making model and a non-dealing desk one. They even have their own model to decide what orders will route and what will stay in the house.

A true broker is a pure ECN one. Unfortunately, this comes at high costs for the retail traders. But, there are businesses that, for a minimum deposit that is bigger than the usual, and higher commissions, offer this kind of opportunity for the retail trader.

Conclusion

Most brokers make their money betting against the clients’ orders. While this is unethical, is a profitable business model.

As time passed and competition becomes even stiffer, brokers will have no choice but to align their interests with clients’ interest. Only in doing that, they’ll be a true brokerage house.

 

 

 

eToro Review – Great for novice traders

There are not many brokers you should have heard of but eToro is definitely one of them. This broker has no running TV commercials but there’s lots of talk on the Internet and in many spots this broker is recommended to you. You will read in this review why this broker is a recommendation from lots of people. This broker is definitely the most innovative on the Forex market and was reinventing the wheel with their own social trading network. This way you can get in touch with other traders and even copy their trading activities. This is something very unique and a good reason to take a look at eToro.

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eToro Platforms: CopyTrader

eToro started out with a very simple and easy to navigate trading platform that was more like a game than a professional trading platform. This way it was possible to make Forex trading attractive to a large base of customers. Everybody could start trading easily. There was even features where you could “bet” on either a sumo wrestler or Uncle Sam, both representing their currencies (JPY and USD). Forex trading could not be easier than that. Nowadays eToro is more professional but is still offering a platform that is very easy to use. That’s the reason why eToro is still the best broker for novice traders that just want to start out trading and gather experience.

What we really like about this broker is their steady innovation approach. In 2011 the OpenBook was introduced. There you could see the trades of all other (successful) traders. The advancement was CopyTrader – a feature that lets you simply copy the trades of other traders without doing anything. For example you can deposit $100 and invest $25 in a specific and successful trader. This way all of his trades will be copied 1:1. If he earns 10% in profit you then have $27,50 in your account.

It’s sad that eToro lacks behind competition when it comes to mobile trading. Plus500 is doing a better job there and is offering apps for iPhone, Android and iPad.

When it comes to demo accounts eToro is on top of things again and offers demo accounts that are absolutely free.

Bonus offers and accounts

There are different accounts at eToro depending on your deposit amount. When you deposit between $50 and $999 you’ll get a Bronze account, with $1,000 – $4,999 a Silver account, etc. Unfortunately, eToro does not offer bonuses with stone-cold cash any more. There are other incentives like a better VIP support, webinars or daily analysis.

Deposit and Withdraw

To make a deposit or withdraw at eToro you can make use of the following payment options: credit cards (VISA, Mastercard), Paypal, Skrill/Moneybookers, wire transfer, instant cash and Neteller. It’s very simple to make a deposit and a withdraw at eToro.

eToro overview

Currency pairs: 16
Spread: 3 Pips EUR/USD
Commodities: Yes
CFDs: No
Max. leverage: 400:1
Min. Margin: 0,25%

Summary

eToro is maybe the largest Forex broker on the market (in 2015) and there are several good reasons for that. eToro achieved something very unique: they could reach the masses with their innovative approach, making Forex trading interesting to everybody. People that did not even know that you could trade with currencies are turning into Forex traders. Other success factors are steady innovations (with OpenBook and Copytrader), an exremly easy to use platform and a great customer support. We’re confident that eToro will work on these things in the future as well and that’s the reason why this broker should stay on top for a long while.

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easyMarkets Review

easyforex_160x100easyMarkets, known as “Easy-Forex” until summer 2016, is a well known and very popular broker worldwide. The company was founded in 2003 and is regulated in several countries, for example by the CySEC (European market) and the ASIC (Australian market). Therefore, easyMarkets has to hold customer deposits in segregated accounts which means your money is absolutely safe.

If you want a reliable and trustworthy broker with an excellent software (Metatrader 4) and a competent customer service, easyMarkets is the right choice for you.

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Open a live account at easyMarkets

Platforms and Software

If you sign up with easyMarkets you can choose between several platforms to trade with and everyone should find the best software solution for his or her particular needs.

easyMarkets was the first broker that introduced “trading directly in the browser”. Traders can use the webtrader which is an online software solution that works in browsers like Internet Explorer, Firefox, Opera or Google Chrome. This is a very comfortable choice to start with because you don’t have to download and install a separate software on your computer. You have all basic functions in the right place and trading is very easy. Of course, if you need features like advanced charting this is not the right platform for you. It’s probably best on-the- go to check the markets from everywhere and to react properly.

Metatrader

If you need advanced features you can install easyMarkets’s own software Tradedesk or the most popular trading software Metatrader 4 from MetaQuotes Software Corp.. Traders love the MT4 platform for many reasons:

  • the user experience is great
  • advanced and user friendly trading features
  • advanced charting capabilities
  • the Expert Advisors enable traders to automate their trades
  • relatively low on resources
  • secure platform that encrypts the data between trader and server
  • customization

Mobile Trading

If you want to trade on-the-go you can do so with a variety of mobile platforms from easyMarkets. You can choose between iPhone and Android apps for your smartphone.

easyMarkets Accounts and Bonus

This broker offers a demo account, which is great news. This means that you can register and do you first trades with demo money without risking real money.
You can open a real account with a minimum deposit of $100.

In general, the more you deposit the more advantages you have. Traders with a premium account (minimum deposit $500) can benefit from features like live market alerts via SMS or technical analysis signals. Traders with a VIP account (minimum deposit $5,000) do even get market update calls by dealers.

Deposit and Withdraw

It is important that brokers offer a wide range of deposit and withdrawal options. easyMarkets offers wire transfer, credit cards (VISA, Mastercard), Skrill, Neteller and Webmoney.

easyMarkets Overview

Currency pairs: 136
Spread: From 1.8 Pips EUR/USD
Commodities: Yes
CFDs: Yes
Max. leverage: 400:1
Min. Margin: 0,25%
Deal cancellation feature

Summary

For traders who want a reliable and regulated broker easyMarkets is the right choice. Metatrader 4, mobile trading, very good customer service, SMS alerts, these are just a few advantages you get if you sign-up with this excellent broker.

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AvaTrade Review and Experiences

AvaTrade

AvaTrade is one of the largest Forex brokers based in the heart of Europe and part of the “Ava-Group”. It’s highly likely that you ever heard of one of these “Ava-Brands” before. AvaTrade is a broker with increasing popularity especially in Europe and thanks to the Metatrader support it’s a broker for advanced and professional traders. All trader funds are located in the Commerzbank in Frankfurt, Germany. This broker also helps novice traders with a personal assistant, free webinars and market reports. That’s why AvaTrade is a good choice for novice traders and professionals alike and the reason why we highly recommend this broker.

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Platform and Software

AvaTrade offers its own webtrader platform called AvaJava. This one is pretty simple and nothing fancy but when you compare this platform with eToro or Plus500 it will disappoint you a bit. These two brokers put everything into their platform and to AvaTrade it’s just an addition and you see that they focus on their Metatrader platform.

But Metatrader is a good argument because it’s the most popular and best known trading platform with lots of advantages. Lots of advanced and professional traders make use of this platform and can’t even imagine to use another one. This shows the importance of Metatrader to a lot of traders!

When it comes to mobile trading, this broker offers AvaJava and Metatrader support for iPhone and Android. For Windows Mobile, Blackberry and Symbian phones you can “only” use the Metatrader 4 mobile platform. Something that is unique and distinguishes this broker from others are free trading signals and news that are being sent by push notifications to mobile phones.

Bonus and accounts

Like most other brokers there are different accounts at AvaTrade like Silver, Gold, Platinum and VIP. What account you’re allowed to use depends on your first deposit amount. You will get a silver account when you make your minimum deposit of $100 and a $50 bonus on top – this ratio is very good in comparison to other Forex brokers. If you don’t want to deposit a fortune but still get a decent bonus, this is your offer! You will become a gold trader when you deposit $1.000 and then you’ll receive a $150 bonus. As Platinum trader you will receive a 10% bonus but you also have to deposit $10.000 and more.

Deposit and Withdrawal

Both deposit and withdrawal are important for Forex traders. Without a deposit you won’t be able to make any trades and without a cashout you won’t profit from your earnings. Luckily AvaTrade offers a broad selection of deposit methods like wire transfer, credit cards (Mastercard and Visa), Paypal, Skrill (Moneybookers), Neteller and Webmoney. Even Paypal clients are able to make their deposit as you can see.

AvaTrade overview

Currency pairs: 44
Spread: 3 Pips EUR/USD
Commodities: Yes
CFDs: Yes
Max. leverage: 200:1
Min. Margin: 0,50%

Résumé

AvaTrade

There are good reasons why Ava FX is getting more and more popular amongst Forex traders. Advanced traders love their Metatrader support but also novice traders will get their money’s worth thanks to great support with webinars or personal assistants. Overall Ava FX is a broker that is better suited for advanced traders and professionals because of their great support, their Metatrader platform and a safe care of their trading funds.

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Plus500 Review

Plus500 is authorised and regulated. See the information below.

Plus500 is one of the few brokers that most trades have certainly heard about. Even in Television you can see some of their commercials but advertisement is not the only reason why Plus500 became extremly popular recently. Their whole offering is suited for experienced traders and you can trade CFDs on Forex, Stocks, Commodities, Options and Indices with their very easy to use platform that is available as web based platform, download version or even mobile apps. These are good reasons to take a closer look at this broker.

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Plus500 is a CFD service. Your capital is at risk

Plus500 Platforms

A big advantage of Plus500 is the platform offering. There’s a webtrader which is the heart of Plus500. The webtrader is very simple and easy to navitage. You can open a position with one single click but also analyze charts with several indicators. Plus500 achieves something were other brokers fail: They combine simpleness with good funcionality.

Mobile trading platforms for iPhone, Android and iPad are a big plus for Plus500. This is something almost no other broker offers at the moment. You can simply download apps through app stores and login with your account details. Theoretically, you can even trade mobile and with any other platform simultaneously.

You can also download and install the Plus500 platform on your PC. It’s available for Windows PCs, Mac OS and Linux at the moment. You can use the Plus500 webtrader with these operating systems though.

You can see Plus500s strenghts unfold with their platforms and that’s why you have a very unique trading experience with this broker and it is something Plus500 makes different and better than most competitors.

Plus 500 Regulation

Plus500UK Ltd is authorised and regulated by the Financial Conduct Authority (FRN 509909).
Plus500CY LTD is authorised and regulated by the Cyprus Securities and Exchange Commission (Licence No. 250/14).
Plus500AU Pty Ltd, ACN 153 301 681, AFSL # 417727, issued by the Australian Securities and Investments Commission is authorized to issue these products to Australian residents. Derivatives issuer licence in New Zealand, FSP #. 486026 authorises us to issue these products to New Zealand residents. Plus500AU Pty Ltd, is also an authorized Financial Services Provider in South Africa, FSP 47546. You do not own or have any rights to the underlying assets. Please consider the Disclosure documents available on their websites.

Deposit and Withdraw

Depositing funds at Forex brokers is elementary. Otherwise you can’t even trade for real money. But a withdraw is also important, otherwise you can’t make use of your profits. It’s important that a broker is offering a wide range of deposit methods and this is the case at Plus500. You can deposit using wire transfer, instant cash, credit cards (VISA, Mastercard), Paypal and Skrill (formerly Moneybookers).

Plus500 Overview

Currency pairs: 59
Spread: min. 2 Pips EUR/USD
Commodities: Yes
CFDs: Yes
Max. leverage: see website for actual values
Min. Margin: see website for actual values

Summary

Premium AffiliateThere’s no doubt that Plus500 is one of the top brokers in the industry and there are several good reasons for that. The trading platform is very easy to use and fits the demands of less experienced and advanced traders alike. As Linux or Mac user you can trade with the Plus500 webtrader and when you’re on the go you can simply download an app and trade mobile. Trading is not limited to currencies, you can trade CFDs on Forex, Stocks, Commodities, Options and Indices. The minimum deposit is only $100.

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Risk Disclosure Notice: CFD’s can put your capital at risk if used in a speculative manner.