Every new Forex trader has a set of tasks to complete before they can actually get to trading. The most important of these tasks is to choose the right broker. During the search for the perfect brokerage fit, traders consider a variety of factors, from rules and regulations to the amount of support and educational materials offered along the way.
But as you go from one broker to another, trying to make a choice, the flashy words ‘Forex deposit bonus’ keep on coming up. Today we dive into the concept of Forex deposit bonuses to better understand how such offers work and what are the dangers of following a broker only because of a bonus promise.
What is a Deposit Bonus Forex?
Deposit bonus Forex offers come in all types of shapes and sizes. Essentially, a deposit bonus is a compensation from the broker awarded at some point in your trading journey. That’s kind of how the broker says ‘Thank you for choosing to work with me.’ But unlike a typical thank-you note, every bonus deposit Forex has its own set of rules and terms.
This way, a trader might only get a reward after proving their interest by showing activity. Or, in another case scenario, the bonus will be only available for specific types of trading and not for withdrawal. Not to mention, some bonus offers are simply empty promises set to lure in inexperienced traders and trick them into investing with an illegitimate broker. That’s why it is crucial to understand the mechanics of every particular deposit bonus Forex, which is exactly what we are aiming to do today. Let’s start by how do Forex deposit bonuses work.
How Does a Forex Deposit Bonus Work?
As previously mentioned, there are a lot of different types of deposit Forex bonus. However, despite a large number of differences, there is one thing in common — to get a deposit bonus, you will have to, well, deposit. And to start investing in Forex, you need to open an account first.
Forex trading accounts serve as the base ground for all trading activity. To open one you’ll have to start by evaluating your resources and preferences first because different account types suit different kinds of traders. The biggest difference among the account options with most brokers is the size of the initial deposit, which, in turn, will reflect on the trading capabilities. For example, the higher is the account class, the bigger amounts it allows to process.
To activate an account the broker will ask you a series of questions to make sure you chose the correct account type and also request a copy of an ID. As soon as your account is live, you can go ahead and make a deposit. Depending on the transfer channel, the transaction can take anywhere from a couple of minutes to a few hours. To get a more specific time estimate, you’ll need to ask your broker.
Then, as the deposit reaches the account, the Forex deposit bonus activates. In some cases it will immediately appear on the account balance, in others, it will be available after a specific trade volume. Also, while some bonuses are available for withdrawal, others might only work for actual trading. Once again, make sure to read through the terms and conditions to know the exact answer. And to help you out a bit, here are some of the most common types of Forex deposit bonuses.
Different Types of Forex Deposit Bonuses
Although each broker seems to be offering a perfectly unique bonus deposit Forex solution, all of them can roughly divide into two categories. It is important to understand the reasons why each of these bonus types exists, to use them most effectively. Note that while the majority of bonus offers exist to attract novices, some of them are only suitable for professional use, for example, the no deposit bonus Forex.
No Deposit Bonus Forex
The no deposit Forex bonus, as partially clear from the name, takes place without an actual deposit. This means a trader can begin to use the money to trade before committing with their own funds. It’s worth mentioning that this type of bonus is usually not very significant: anywhere between $5 and $100, but in most cases, it’s supposed to be enough to test the currency exchange scene before jumping right in.
However, the no deposit bonus on Forex isn’t really a great tool for newbies. Without the appropriate levels of knowledge, even as much as $100 can disappear in a matter of minutes. That’s why the no deposit solution is better for experienced traders who are looking to switch brokers or try a new trading strategy.
By opening a no deposit Forex account, established traders can practice away without risking any money from their primary accounts. The small bonus amount is not enough to make a visible profit, but it’s perfect for polishing off trading methods and techniques. So, the only real disadvantage of this bonus type is that it’s attractive to novice traders.
But is there a way for Forex newcomers to try out their skillset in the conditions of the real market without risking anything? Luckily, there is, and it is the demo account.
Demo Accounts for Forex Trading
We will take a brief detour from our discussion of Forex deposit bonuses to talk about demo accounts: the ultimate practice instruments for anyone with zero experience, as well as for trading gurus. Demo is a simulator of the live trading account, which includes all the tools, settings, indicators, and possibilities of the live MT4 platform. There are even real-time price quotes for every currency pair and a simulated account balance that will reflect the victories and the failures along with the practice.
Just like trading with a no deposit bonus Forex account, traders have an option to experiment. The difference is, however, in the fact that demo has no limitations. This means, you can tarde in the simulator for as long as you need and try every trick in the book until you gain enough confidence to go to the live market.
No money invested equals no risk, which ultimately translates into stress-free Forex trading practice. But although there are no risks that come along with trading in demo mode, experts advise implementing the most realistic strategies, including proper risk managing techniques. By making the simulation as life-like as possible, traders can learn to handle the pressure of fast-paced currency trading and master acting fast.
Overall, demo accounts are a win-win from every angle: while novices train to enter the real market, the pros can get a chance to adjust their trading styles and develop individual strategies. Now, let’s get back to the original topic of today’s post and explore the other common type of Forex deposit bonuses — the rebates.
What Are Forex Rebates?
Forex trading can be very profitable. But as traders make more, they face higher risks as well as higher service fees for their trading. Commissions and spreads are brokers’ channels of earning profit. And that’s fair: a lot of well-established brokers do a great job at prepping their traders for the live Forex trading and guiding them along the way, so they deserve a little compensation.
The problem for the trader, however, is that sometimes that compensation strongly interferes with profits. For example, scalpers rely on really small profits that eventually accumulate into one big gain. Each of those profits is a result of an individual trade, and the processing of that trade most likely calls for some charges.
There are two most notable charges that traders face on a daily basis: swap and spread. Swap is the overnight interest fee that applies if a trade has to roll over to the next day. This charge mostly affects swing traders and position traders, who hold their trades for anywhere from several days to multiple months. However, the income from long-term trades is usually sufficient enough to tale care of swap costs, making them less of an issue.
The spread charges, on the other hand, equally affect every trader. Spread is the difference between the ask and bid prices, or sell and buy, in other words. You can calculate the spread by subtracting the lower quote from the higher. For example, if EUR/USD bid is 1.1851 and the ask is 1.1855, the spread is 4 pips. This difference will eventually reflect on your ultimate profit.
To make the trading process for fast-paced traders, such as scalpers, more pleasant, some brokers came up with the concept of rebating some of the spread charges. The rebates work as a partial refund to the account, usually at the end of the month, and more rarely at the end of each session. In theory spread rebates sound very attractive.
But in reality, brokers who offer rebate Forex deposit bonuses are the ones who charge the highest spreads. That’s right, a broker can be in control of the spread charges and has the power to minimize them in a lot of cases. This means, that instead of looking for a broker, who will rebate your spread fees, it’s better to find one that doesn’t charge high spreads, to begin with.
Deposit Forex Bonus Brokers
Now, the best type of Forex deposit bonus is the one that adds a certain percentage on top of the deposit. The range of the percentages can be anywhere from 5% to 500%, but, against all logic, bigger isn’t always better in this case. Why is that?
The keyword in the Forex deposit bonus is ‘bonus’, which means it shouldn’t be the main criteria in broker selection, but rather a nice little compliment at the end. A trader, especially an inexperienced one, has to focus on finding a trustworthy, reliable broker, who sincerely cares about the success of every client.
Most well-established brokers have enough to offer to be chosen among others. In their cases, any type of deposit Forex bonus is nothing more than an incentive. In fact, the brokers who play a large deposit bonus card as their main are very likely to turn out to be a fraud.
To choose a suitable broker, start by outlining your own skills and expectations. If you need to learn first, filter out the brokers who offer a lot of free-access educational materials and a no-charge demo account. As long as you get an opportunity to learn, it’s already a great sign.
Then, spend a few moments looking through the range of services the broker in question provides. As a general rule, brokers who have been around for a while will cater to virtually any type of trader: from absolute novice to a skilled pro, and this reflects in the number of options available.
Finally, have a chat with a broker’s team representative to get an idea of the level of professional support you will get throughout your trading journey. The opportunity to reach someone on the team at any time can go a long way, especially if it concerns financial transfers or time-sensitive trading advice.
After you’ve made sure that the broker in front of you matches all the necessary criteria — take a look at what kind of Forex deposit bonuses they offer. Keep in mind that when a broker has suspiciously attractive bonus offers, it’s probably best to stay cautious. Which brings us to the next brief segment: red-flag Forex deposit bonus propositions.
Dangerous Forex Deposit Bonuses Aka ‘gifts’
If you ever come across an offer of physical gifts, such as a smartwatch, laptop, or a smartphone, as a sign-up compensation, ask yourself this: why? Why would a broker give away presents to anyone who chooses their services? Brokers, just like traders, work for a profit, which means everything they do has to benefit them on some level. And where would the profit come from during a giveaway?
Of course, gift-giving isn’t entirely impossible among the broker community. For instance, a broker can celebrate their anniversary by rewarding the most loyal clients or by establishing a contest to win a physical prize. Other than that there is no reason to look for gifts from brokers.
In the majority of cases, the brokers who offer such a deposit Forex bonus are the ones with little to none reputation to lose. The unreliable brokerage firms can easily afford to give false promises, confusing suggestions, and non-functional tools. In the best-case scenario you might get a cheap substitute of the promised gift, and in the worst-case — say good-bye to your deposit and personal data, as the faulty broker disappeared the next day.
So, what are the traders to do? Stay away from attractive promotions altogether? Not at all! You just have to be careful while going through the available offers and pay attention to even the tiniest details. To choose correctly, let’s first sum up all the Forex deposit bonus offers to avoid.
Forex Deposit Bonuses to Avoid
No matter how attractive and straightforward the offer looks, it will always come with a very distinct set of conditions. Most likely a big deposit bonus Forex will not be available for withdrawal unless a trader partakes in some rather risky activities. In other cases, the bonus will simply serve as leverage and provoke the trader to go in deeper than necessary.
Leverage on its own can be a wonderful tool, but it has to be used carefully with a great degree of consideration. This means, that when a broker forces you to expand your trading capabilities they are most likely bad news.
As a rule of thumb, any deposit bonus Forex offer that seems suspicious will most likely turn out to be fishy. These include large bonuses (anything over a 100%), physical gifts, unclear terms, requests of too much personal info, and others. An insider tip is to open several brokers’ sites in separate tabs and compare the general look of their websites. The fraudsters usually stand out with flashing offers, unrealistic Forex deposit bonuses, and the fact that they have only been around for a couple of months.
Time for the final question: how to choose the best Forex deposit bonus offer?
How to Choose the Best Forex Deposit Bonus Offer
As already mentioned, the quality of the Forex deposit bonus won’t matter if your choice of a broker was poor. Every trading journey starts with finding the broker that perfectly meets your requirements and provides stable support for as long as you might need it. For the most part, the broker you initially go with will stay with you for years, so, it makes absolute sense to choose wisely.
The next thing to consider is the specific terms of the deposit Forex bonus. Usually, the bonus achievement is connected to reaching a certain trading volume during a limited time. Your goal is to make sure that the bonus will be available to you without any extra effort. In other words, the Forex deposit bonus has to fit your trading strategy, not the other way round.
If you are still new to the whole currency trading scene and do not have a worked-out strategy up your sleeve, finding one should become your priority. Open a free demo account to test out strategies you learn about online, experiment with the settings, and maybe even develop your very own approach. After you got a solid understanding of what Forex trading is like, go ahead and consider choosing between the Forex deposit bonuses.
The final piece of advice is to prioritize risk management over bonus achievement. Smart traders are always forward-looking ones. Getting your hands on an insignificant Forex deposit bonus will seem like nothing years into your trading career. However, reserving and growing your initial deposit, bonus or no bonus, can ultimately define your entire Forex success.
With that said, Forex deposit bonuses work just fine in a lot of cases. All you have to do is to treat the bonus selection process seriously and not prioritize it over other factors. Remember that bonus should always remain a bonus, and not dictate your trading strategy and techniques.