Use bonuses correctly. How to make a profit on free money?

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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?

bonus

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, not many people think about where the company gets the bonus amounts that are generously credited to the trading accounts of thousands of clients. Does the broker seek funds for bonuses from its own profit? But is that profit so high as to guarantee each client a bonus of 30%, 40%, 50% or more and still keep the business profitable? 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 clients and motivating them through a system of bonuses is normal practice in almost all areas of business. However, it should be clearly understood that in the financial markets bonuses from brokers cannot be excessively large. Here we encounter the paradoxical situation where less is better.

[info_block align="right" linkText="Contests, promotions and bonuses for traders" linkUrl="https://forexsystemsru.com/konkursy-akcii-i-bonusy-dlya-treiderov-f104/" imageUrl="https://files.fortrader.org/uploads/2014/10/bonus1.jpg"]Discussion of current promotions, contests and bonuses on the forum[/info_block]

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.

Only cheese in a mousetrap is free

The domestic market of services does not stand still and in order to attract traders, brokers and dealing centers often offer a bonus when opening a trading account with them.

[info_block align="right"]Use the bonus provided correctly, as an additional tool that can increase the effectiveness of trading and allow the trader to earn a little more than usual.[/info_block]

Thus conditions of granting of such bonus can be very different, but, what the hell, the majority of traders do not particularly go into them. When traders, especially the beginners, have a symbol $ in their eyes when they hear from a nice girl-manager of the company about the bonus 50% on the trading account. And the conditions? What are the conditions? The money is right here and we'll deal with the conditions. Then... Maybe...

We are sensible practicing traders, so this is not our method. Let's figure out how to choose the right welcome bonuses and use them in trading.

Any sensible person should understand that under the conditions of developed capitalism the word "free" does not exist. That's why any bonus provided by the broker implies some limitations and certain conditions of its usage. Let's consider the key points you should pay attention to when choosing a bonus.

Can I use bonus funds in trading?

This is probably the most important point in using the bonus. Will the bonus burn out if equity drops below its level? No? So, the bonus funds may be used as a pledge amount, as well as to pay for the drawdown. That is, in other words, the bonus increases the balance on the trading account. That is, of course, strong advantage.

Is the use of the bonus limited in time?

As a rule, when a bonus is granted, a time limit is defined for its validity. Once the time expires, the bonus amount is deducted from the trading account. If such a condition is present, it is imperative to keep it in mind when trading in order to have time to close some volume of your trades, calculated on bonus funds in time.

Does the bonus depend on the volume of trade?

Almost always the bonus is transferred to the trader's personal funds after he has traded the required number of lots. For example: in order to receive a bonus of $1,000, it is necessary to make trades with a total volume of 100 lots. Accordingly, there is a correlation: the larger the bonus provided, the more lots must be traded.

And that's where many traders make the mistake of aiming to work off the bonus. In most cases such a "pursuit of free money" leads to gross violations of the rules of money management and to losing the deposit.

On the other hand, there are trading strategies that open a large number of trades. If a trader uses this type of tactic, it is possible to roughly calculate how much time it will take to "trade" the necessary volume to get the bonus. It is very important to keep in mind the previous point - the time limit for the bonus.

Is it possible to partially work off the bonus funds?

Some brokers providing bonuses allow partial withdrawal. That is, how many lots a trader has traded, that much money is transferred from bonus funds to personal funds. This is another plus.

Are there any restrictions on the withdrawal of bonus funds?

Previously, I have repeatedly encountered the practice of one of the domestic brokersIn the past, the bonus had an unlimited validity period, but it was "burned out" if the trader withdrew at least the minimum amount of even his personal funds from his trading account. It is very important that the presence of bonus funds on the account in no way limits the withdrawal of one's own funds from the deposit. If there are any restrictions on profit withdrawal, it is better to refuse from such bonus or provide for closing trades before the withdrawal request.

Does the bonus limit the amount of leverage?

With some types of bonuses the maximum leverage may be limited. Naturally, this is categorically disadvantageous for the trader, because the use of leverage is the basis of modern "consumer" trading, if I may say so.

How to correctly use the bonus when trading?

So, having used our recommendations, the trader has chosen an acceptable bonus. What next? And then you need to use it correctly.

[info_block align="right" linkText="Leverage 1:500 - the limit of an honest broker?" linkUrl="https://mr-trader.com/learn/brokers-forex-trading/kreditnoe-plecho-1500-predel-chestnogo-foreks-brokera" imageUrl="http://files.fortrader.org/uploads/2015/04/kreditnoe-plecho-356×293.png"]Why do most brokers offer leverage no more than 1:500, limiting their profits? Is this a sign of an honest broker?[/info_block]

First of all, it is necessary to abandon the goal of "earning the full bonus". In practice, such an approach means wasted time and, as we've already said, inflated trading risks. Immediately forget about "winding up" trading volumes by overestimating the volume of transactions and increasing the number of trading operations. Such trading turns into a "race for the bonus" and ends very quickly because the deposit is drained.

The best way to use a bonus is similar to increasing leverage. The logic is simple - having a tradable bonus on your account allows you to open trades of greater volume.

How does it work? For example, a trader has $1,000 on his account. Additionally, there is a bonus of 30%. Accordingly, the balance is $1,300. When calculating the volume of opened transactions, the standard level of risk equals 3% from the deposit. Only for calculation the trader takes the amount of $1,300 instead of $1,000.

You can even benefit from no deposit bonus. Yes, it is practically impossible to withdraw it, however, nobody forbids to use it for testing simple strategies, checking broker's trading conditions or simply for developing your trading skills. However, there is one "but" here - the size of the bonus. If there is only enough money for one position of minimum volume, it is unlikely that such a bonus is useful.

Shall we put a little spin on it?

Have you already forgotten about the "winding up" of trading volumes? Now let's remember again. In principle, trading turnover can be increased, provided that the payoff of bonus funds does not require it to be of some exorbitant size.

It should be done wisely, without getting carried away and without giving emotions a single chance. The most adequate way of "smart winding up" is manual trading in normal mode without increased trading risks with additional use of several Expert Advisors with adequate Money Management on the same deposit.

Of course, this method does not give 100% a guarantee that the conditions for receiving the bonus will be met. What does 100% guarantee? Exactly. That's why if we succeeded in trading for the bonus - fine, if we didn't - well, whatever.

To summarize

So, what do you need to know when using a bonus? You should not make working off the bonus an end in itself. It sounds paradoxical, but it is not profitable either for the trader or for the broker. Trading on any account is associated with risk, and the amount of all bonuses is calculated in such a way that it cannot even cover the trading costs.

Use the bonus properly, as an additional tool that can increase the efficiency of trading and allow the trader to earn a little more than usual.

Carefully study all the conditions of the promotion, calculate whether the broker can afford to honestly fulfill the 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".

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