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EXCLUSIVE: There is No Free Lunch. 400% Broker Bonus Offer Exposed.

17 Years ago | July 21, 2014 1/28/23, 12:00 AM

I have written articles on broker bonuses so my view on them is pretty clear. A GTA member asked me about a 400% broker bonus offer and I almost fell off my chair. As I told the member, there is no free lunch in this world and this is an example. What do you think about it?

I generally have an open mind but when I saw a 400% bonus offer, I put on my skeptic hat and read the fine print of the offer. This is what I saw and you can draw your own conclusions:

1)   Trading volume requirement = bonus/10.

For example, if your initial capital is $5000, the bonus would be $20,000 (i.e. 4 x $5000) and trading volume requirement = 2000 standard lots (20,000/10) to vest the bonus.

2)   The bonus does not vest (i.e. cannot be redeemed) until after the volume requirement is met.

3)   Profits cannot be withdrawn until the volume requirement is satisfied.

4)   Bonus can be used as trading equity.

If you see this in a bonus offer, beware as I see this as the broker is trying to trick you into over leveraging.

In the above example, using 10% leverage, initial capital $5000, your typical trade size would be $50,000. If you treat your account as having $25,000 ($5,000 + $20,000), then your trade  size would be $250,000 using the same 10% leverage. In reality, this is 50% leverage of $5,000 as the $20,000 bonus is not vested equity even though it may appears to be in your account. 

So if you lose 1%, instead of losing $500 = 10% of your equity, your loss would be $2500 = 50% of your equity. The broker may be trying to trick you into thinking you have $25,000 in your account when in fact you only have $5000 as losses come out of your actual equity as the bonus is not vested. 

5)   Fine print in this bonus offer: The Company reserves the right to cancel the bonus and profits earned from said bonus when it is determined that the client has attempted abusive trading practices in an effort to unfairly take advantage of our 400% offer. Some examples of this include but are not limited to: Individual hedging in a single account; Individual hedging in multiple accounts; Team hedging in multiple accounts; trading in a manner that is obviously meant to only meet the bonus withdrawal volume requirements (i.e. - A trader with a history of trades for average duration of a few days suddenly executes multiple lot trades whose duration is under one minute).

So you can see why I am not a fan of opening an account just to get a broker bonus. Any financial analyst or accountant will tell you if the 400% bonus was easily achievable, this broker would not be in business for long. The broker may be trying to trick you into over leveraging with the hope that you lose your initial equity, replenish your account in an attempt to get your bonus but never get close to vesting it. There is also an out clause in this offer that allows the broker to cancel the bonus. This alone would make me run for the hills. I suggest reading the following articles and then decide for yourself. You should come up with the same conclusion that there is no free lunch.

Beware of Increasing Your Trading Volume

 

Ask Your Advocate: Are Broker Bonuses a Scam?

 

* Broker name has been omitted from this article.

 

Jay Meisler, founder

Global Traders Association

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