How do Brokerages Make Money?
When trading Forex, most people do not think about how brokers make money. However, this is a fundamental thing to understand before depositing. In this article, I will explain how Forex brokers make money and what their role is in facilitating liquidity.
Understanding how Forex brokers make money can help you choose the right broker. Most brokers have a handful of charges that they use to profit from their clients. Becoming familiar with these options will help you know where your money is going.
The main source of revenue is fees
Some Forex brokers charge a commission per trade, while others charge the spread between buy / sell prices. The main way Forex brokers make money is by keeping the spread or charging a flat fee per shift. Some brokers charge both, but this is becoming less common these days, as commoditization of the business requires lower prices. Unfortunately, some less scrupulous Forex brokers have previously mentioned that they have commissions without commissions, but what they usually do is charge the spread more to make up the difference.
Sometimes the spread is fixed, sometimes it is variable. In a variable spread liquidity pool, the spread value will depend on how many orders are available. When there is an important announcement, such as the Nonfarm Payroll Numbers that leave the United States, the spread generally increases. Because of this, in a volatile market, you may end up paying more for the spread than you anticipate. This is the biggest advantage of a fixed spread, because at least you will know what will be charged to make buying and selling easier.
Some Forex brokers charge extra when it comes to customer service and training. For example, some will offer signals, some will offer in-depth analysis, and some will even offer private educational classes and webinars for those willing to pay more or have a larger account. That said, if you understand money management and business techniques, these things are very rarely necessary.