Bonuses offered by brokers became a habitual attribute of Forex market work and often are decisive factors in choosing the company for trading. But very often received bonuses are wrapped against the client and instead of increasing his profit only accelerate the process of deposit zeroing.
How to understand when the bonus is just a marketing tool and is really capable to increase the efficiency of your trade and when, instead, is a sign of company unfair practices?
Thin air bonuses
Initially, all it seems quite transparent – to the client deposit is added the fixed bonus amount or a certain percent. Respectively, the client can come into the market in large volume, work with wider lines of financial instruments and get more considerable profit from each transaction.
However, only some traders wondering from where the company takes the bonus amounts which are generously enlisted into trading accounts of thousands of clients. The broker digs up resources on bonuses from his own profit? But whether this profit is so great to guarantee to each client a bonus of 30, 40, 50 and more percent and to keep the profitability of the business? Forex broker adds the virtual amounts to clients' deposits? But how this virtual money will increase your real profit on the trade in the financial market? The broker increases deposits of new clients by means of the losses of already existing? But, in this case, fair business in the sphere of the financial markets remains out of the question.
The matter of size
Basically, client reward and their motivation through bonus system are normal practice almost in all spheres of business. However, it is worth understanding that in the financial markets bonuses from Forex brokers can't be excessively big. Here we meet a paradoxical situation when less – means better.
The broker doing fair and open business can increase deposits of the clients only at the expense of own means – parts of the profit which is written off on advertising and marketing expense. But these expenses can't be boundless, therefore, small bonuses from 5% or 10% up to 20% can be considered a limit.
The size of a bonus can also increase to 25-35% or even to 50%, however, in that case, it can't be offered to all clients. Such bonuses are used as encouragement for a narrow group of traders or as an exclusive offer for VIP clients, client's birthday, etc.
In a case if everyone who opened or recharged deposit during the certain period will receive a bonus of 50% or double a deposit amount, the broker simply won't have funds for financing the current activities and normal functioning.
We will make a simple calculation: let consider 5000 people took part in the promotion. Each of them filled up the trading account of the average amount of $10 000 and received another 50% as a bonus. Thus, the total amount of the bonuses received by the client shall constitute $25 000 000. It is the excessive section of marketing expense even for a large multinational corporation, without speaking about the average broker company. And if to consider that usually similar bonus promotion repeat nearly every season, the advertising budget for the company which works only as the intermediary and gets profit via the mechanism of spreads and swaps, it turns out simply astronomical.
Bonus - a cheat?
The similar amount simply can't really be credited into client accounts, therefore we need to assume three not palatable alternatives:
- The declared Forex bonus is as virtual as the deposit of a demo account and doesn't bring to the client any benefit in the real market;
- By the rules of the promotion a bonus automatically means impossibility or difficulty of trader funds withdrawal;
- Bonus means undertake not from operating profit of the broker, and from losses of clients if transactions aren't brought to the market, and orders are blocked in the company.
In the first case, the bonus can be considered simply not really fair marketing mix. In the second option, money doesn't leave broker company, and it can offer to the new clients any bonuses up to 200% because the real payments after all anyway won't be. The third option represents frank fraud and something reminds a classical financial pyramid: new clients are attracted at the expense of the means lost by those who joined the company earlier and then the beginners lose the invested money altogether with the bonus.
Three signs of Forex bonus used as a trap:
- The size of a bonus exceeds 25-30%.
- The considerable bonus is provided to all or, at least, very wide range of clients.
- The terms of the bonus promotion or according to the company policy exist additional severe conditions which make the bonus and profit withdrawal impossible.
Undoubtedly, everyone loves discounts and bonuses from Forex brokers, but you shouldn't be blinded by high percent and act illogically. Attentively study all conditions of the promotion, count, whether the broker will be able fairly to keep promises and enlist real money for accounts of all participants. And if in the next “profitable” offer from the broker possess one or several disturbing signs listed above, keep in mind the saying: “Free cheese is only found in the mousetrap”.