Bonuses from brokers: a real benefit or a trap?

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Bonus promotions from Brokers and dealing centers have long been a common attribute of working in the market and are often decisive factors when choosing a company or determining the amount of credit to the trading account. But very often received bonuses turn against the client and instead of increasing his profit only accelerate the process of deposit zeroing.

How to understand when the bonus from a broker is a purely marketing tool and really can increase the efficiency of your trading, and when, on the contrary, is a signal of dishonesty of the company?

Pay your attention to these articles!

Bonus amounts from brokers out of thin air

At first glance, everything seems quite transparent - to deposit a fixed bonus amount or a certain percentage is added to the client. Accordingly, the client can enter the market with a larger volume, work with a wider range of financial instruments and receive more significant profit from each transaction.

However, few people think about where the company gets the bonus amounts that are generously credited to the trading accounts of thousands of customers. Does the broker seek funds for bonuses from his own profit? But is this profit so big that it guarantees each client a bonus of 30%, 40%, 50% or more and still maintains the profitability of the business? The broker adds virtual amounts to client deposits? But how will this virtual money increase your real profit from trading on the financial market? The broker increases deposits from new clients at the expense of losses of existing ones? But in this case honest business in the financial markets is out of the question.

When Size Really Matters

In principle, encouraging customers and motivating them through a system of bonuses is normal practice in almost all areas of business. However, it is worth clearly understanding that in the financial markets bonuses from brokers cannot be excessively large. Here we encounter the paradoxical situation where less is better.

A broker conducting an honest and open business can increase his clients' deposits only at his own expense - read: a part of his profit written off for advertising and marketing expenses. But these expenses can't be unlimited, so small bonuses from 5% or 10% to 20% can be considered the norm.

The size of bonus can also increase up to 25-35% or even up to 50%, but in this case it cannot be granted to all clients. Such bonuses are used as incentives for a narrow group of traders or as an exclusive offer for VIP clients, birthday clients, etc.

In case everyone who opens or replenishes an account within a certain period of time will receive a bonus 50% or doubling the amount of the deposit, the broker simply will not have the funds to finance its current activities and normal functioning.

Let's make a simple calculation: let's assume that 5,000 people participated in the promotion. Each of them deposited their trading account for an average amount of 10 000 USD and received another 50% as a bonus. Thus, the total amount of bonuses received by the client must be 25,000,000 USD. This is an excessive item of marketing expenses even for a large multinational corporation, not to mention an average brokerage company, whose business is concentrated in Russia, CIS and Asian countries. And if we take into account that usually such bonus promotions are repeated almost every season, the advertising budget for a company that acts solely as an intermediary and receives profit through the mechanism of spreads и SWAPIt turns out to be astronomical.

Bonus as a way of relatively fair weaning of client funds

Such sums simply cannot really be credited to client accounts, so we are left to assume three unpleasant alternatives:

The declared bonus is as virtual as a demo account deposit and does not bring any benefit to the client in the real market;
according to the rules of the promotion, receiving a bonus automatically means that it is impossible or difficult to withdraw the trader's own funds;
the bonus funds are not taken from the broker's operating profit, but from the clients' losses in case trades are not taken to the market and orders are overlapped inside the company.

In the first case, the bonus can be read as just not a very conscientious marketing move. In the second variant the money does not leave the brokerage company and it may offer any bonuses up to 200% to all new clients, in any case there will be no real payments. The third version is an outright fraud and somewhat reminiscent of the classic pyramid scheme: new clients are attracted at the expense of the funds lost by those who have joined the company earlier, and then the newcomers lose the invested money together with the bonus amount.

Three signs of using a bonus as a customer trap

The size of the bonus exceeds 25-30%.
A significant bonus is available to all, or at least a very wide range of customers.
Under the terms of a bonus promotion or according to the company's policy, without fulfilling additional strict conditions, it is impossible to withdraw not only the bonus amount itself, but also the client's own funds or the profit earned by him.

Undoubtedly everybody likes discounts and bonuses from brokers, but you should not chase a high percentage contrary to common sense. Carefully study all the conditions of the promotion, calculate whether the broker can afford to honestly keep his promises and credit the real money to the accounts of all the participants of the promotion. And if you find one or more of the above-mentioned warning signs in the next "profitable" offer from a broker or DC, remember the cautionary proverb about "free cheese".