The concept of Forex rebates (or Forex cash back) has become quite popular during the last 2 years. With the increasing number of Forex broker coming out almost every month, the trading conditions and spreads become more attractive. For example, just two years ago a spread of 2 pips on EUR/USD, which is the most, traded currency pair worldwide, was considered as low spread. Today, brokers try to beat that by offering fixed spread of 1.2 pips or variable narrowed down to 0.1 pips. In fact it is rarely possible to have a deal made at a rate of 0.1 pips but still it is around 0.3-0.4 plus you pay some commissions for the execution in case it is STP (Straight Through Processing). Having those conditions is great by itself but now I will try to explain how you can make them even better.
After you read this article tell me if it contributed your knowledge. Let me know if it was useful or not. How would you implement it in your trading strategy?
When you trade with a broker you pay several types of costs:
1. Spread – The difference between BID and ASK price which is always paid by you at a closing time
2. Commissions – In the case of STP or ECN brokers because external counterparties form the spread, the brokers apply commissions for passing on your order to the next level.
3. Rollover costs – Simply put that is a commission paid overnight for the service of holding your position (rolling it over for the next day). It is based on the central banks interest rates and it is different for long and short positions.
Saving costs with Forex Rebates
When you use a forex rebates service you can save costs on 1 and 2 from the above listed, namely the spread and commission. The mechanism is the following: You open a live trading account with a forex broker and tell him that a referring party has referred you – the forex rebates service. Like this the rebate company will consider your account as referred. After that, each trade executed in your account will result in a fixed commission paid to the rebate company by the broker because that is how the broker pays to the rebate company for the service of referring clients. Instead of keeping its remuneration the rebate company gives you most of its commissions in the form of rebates. It is important to note that the rebate service pays you the rebates not the broker. In some cases the forex rebates services pay you nearly 90% of its commission, which results in significant savings for you. To illustrate this with an example let’s assume you don’t yet have an account and have just decided to open one. You choose your broker and now it is crucial to choose your rebates service as well. As soon as you choose your rebate service just tell them “Hello, I’ve been referred by these guys”. That is enough, so your account is now attached to the rebates company’s account. Let’s assume that the rebate you signed up for is 1 pip per round turn lot. This means that each time you close a trade you will get 1 pip back. The good news is that no matter win or lose you always get the forex rebates. So, now you decide to trade EUR/USD with an average spread of 1.2 pips. During the whole period of your trading you can be sure that 1 pip goes back to you guaranteed. In other words you reduced your spread to the amazing 0.2 pips only because you’ve signed up with a rebates program. It is as simple as that. In the case of ECN trading the rebates are usually given as a part of the commission you pay for the execution. Basically, it is the same concept presented in a different way. Say, your ECN spread is 0.3 pips on average and 0.3 pips as fixed commission. If ¼ of this commission is rebated to you will have 0.4 pips spread. Like this you are able to ensure better trading results.
How to start?
To start you just need to look around for the available forex cash back services and choose the one that suits you the best. Of course, different companies offer different conditions, so maybe a good approach is to first choose a broker to open an account with an then look for the best rebates rates offered for this broker.
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Author bio: Peter Traychev specializes in forex rebates services. He has 3 years experience in a business development and marketing roles in the forex industry.