Rebate on : does it affect profitable trading?

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Rebate (Rebate - discount, concession) on - Return of a part of the spread to the trader or the broker's partner, paid on each transaction. Despite the difference in temperaments, characters, experience and level of knowledge, the ultimate goal of all traders is the same - to maximize profit from transactions and reduce their trading costs. And if the amount of profit depends, first of all, on the trader, then the amount of trading costs becomes one of the main criteria in choosing a broker. Some companies directly reduce spreads and commissions, while others offer their clients rebate. In this case, the trader gets some percentage of the spread back, regardless of the result of his trade.

Thus, the trader gets even more profit from positive trades and at least partially compensates unprofitable ones, and the broker increases the total trading turnover. Is this a classic example of a win-win situation? Undoubtedly. But why in this case not all brokers offer rebate, and why this service may turn from profitable opportunity into the source of danger for the trader? Let's try to find out in our today's article.

How is rebate good for the broker?

The availability of rebates can be an additional factor in attracting customers to the company, and to organize the accrual of part spread back into clients' trading accounts is not that difficult from a technical point of view. However, it, in any case, introduces additional confusion into the calculations of the client and the company. So, for example, in the case of cancellation of some trades it is also necessary to make recalculation of the returned part of the spread.

Of course, the percentage of cancelled transactions is not so high, and this factor could be neglected, but do not forget that the spreads and commissions are, if not the only, then certainly the main source of income of a bona fide brokerage firm. And by voluntarily returning part of the spread to the client, the company cuts its own net profit. Just as in the case of store rebates, an overall increase in transaction volume can cover this shortfall and benefit the broker. But only if a small portion of the trading costs is refunded or if there is a selective approach to rebates, where money is not credited on all trades, but only on those that meet the specified conditions. Thus a company can also regulate volumes of clients' transactions with certain financial instruments, for example, by stimulating interest to currency pairs with lesser liquidity and high overall trade costs.

Does the rebate affect trading?

Alas, but for all their outward attractiveness, rebate services cannot be called completely safe for traders. Yes, indeed, a conscientious company will accurately return to your account the stipulated percentage of spread paid. But at the same time rebate chase can severely damage your psychological state of mind, and negligible refundable sum will increase risk level of your trading activity several times.

For the sake of spread refund traders often violate principles of trading strategy and money management rules, make decision in favor of opening doubtful deals, increase the volume of open positions without having objective reasons for that, and as a result lead their account to Margin Call.

Rebate from a broker or a third-party rebate service?

To be fair, it should be noted that rebate projects exist not only within the broker's own services. Third-party companies, so-called rebate services, can also offer a partial spread refund if you open an account with a broker with a link to them. This is one of the partnership options at the financial markets, and in this case you will not receive a part of the brokerage company's profits, but a percentage of the rebate-service's affiliate commission. In this case, regardless of the actual source of the refunds, all the psychological aspects of receiving RebatesThe following guidelines for their safe use remain in force, as do the rules for their safe use.

3 rules of safe use of ribbits

Treat rebates as an additional bonus, not as a decisive factor in opening a particular trade. A partial spread rebate will in no way cover your losses from ill-conceived trades made in the heat of excitement.
Don't trust companies that offer too high a percentage of returns. Remember that no bona fide broker, as well as no independent rebate service, will give away practically all of their profits to clients. If rebates exceed 50% of the spread or commission payment, it is likely that the broker or his partner is making money on something else, such as client losses.
Carefully read the terms of rebates, soberly calculate the costs of transactions with these or those financial instruments and do not allow yourself to be involved in trading less profitable for you instruments.

Remember that success in the financial markets is determined by a set of objective factors and a sound approach to trading, and then Rebates will really become a service for you, increasing the profitability of trading, rather than a psychological enticement or "cheese in a mousetrap" of an unscrupulous player of the brokerage market.

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