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Ask Your Advocate: Are Forex Broker Deposit Bonuses a Scam?

20 Years ago | March 18, 2014 11/27/21, 12:00 AM

Question for the Advocate

I have seen advertisements for forex broker bonuses as much as 100% and I want to know whether they are for real or a scam?

Your Advocate Says

While the word scam may be too harsh as you can read the terms and conditions in the fine print before you sign up for one, forex broker deposit bonuses can be characterized as a “come on.” A broker, like any other company, is in the business to make money so ask yourself why would it give you as much as 100% of your initial capital unless they expected to make money from it. In other words, there is no free lunch in this world and broker bonuses are no exception.

For example, I saw a 100% deposit bonus offer that indicated the bonus could be withdrawn under specified conditions that would test the limits of even the most experienced trader. In this offer, the bonus could be withdrawn after trading one standard lot (100,000 units) for each $1 of bonus. Say you open an account with $1000. This means you would need to trade 1000 standard lots (standard lot = 100,000,000 currency units) to qualify. Putting this in perspective using 20% leverage and 5 trades per day (100,000 per day), it would take 1000 days or approximately 4 years to be able to withdraw the bonus! If your account was opened with $10,000 you would need to trade 1,000,000,000 (ONE BILLION) to be able to withdraw your bonus. Even if the bonus is vested according to volume traded, it may still require a significant amount of trading to vest.

I saw another offer where the bonus amount is added to your opening balance, which allows you to trade a larger amount using the same leverage since your account is twice the size. Say your average leverage is 20% for a $1000 account. Now you have $2,000 in your account (including the bonus) so you can double your trade size with the same 20% leverage. BUT HOLD ON! You cannot withdraw the broker bonus so you are actually trading with 40% since any loss will come out of your equity even though your account will show a larger balance when the bonus is included in it. You would still need to meet the volume requirements to be able to withdraw the bonus.

In each of the above cases the broker is encouraging you to trade a larger volume. This is something you need to avoid. You should never feel pressure to increase your trading volume (either by overtrading or increased leverage or both). It will force you to lose discipline and make trading decisions based on factors other than your market analysis.

To sum up, forex brokers offering deposit bonuses are doing so for their own self-interest and not your benefit. Brokers are in business to make money. They are not charities who give away money for nothing. Read the fine print and you will find there is no free lunch. Don't make a bonus offer the main reason to open an account with a broker.

 

 

 

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