ForexNewsNow – One of the most effective ways an online forex broker might use to entice new customers is by offering prospective clients a sign up bonus. Nevertheless, sometimes these bonuses can come with a variety of strings attached.
While many online foreign exchange brokers offer legitimate bonuses for signing up and making a deposit, other brokers that issue bonuses have strict limitations about how the bonuses can be used, especially if profits are made using the bonus.
Unfortunately, the limitations on bonuses are not readily disclosed by the broker upon releasing the funds, but after the fact breaking the news to the trader once the trader complains.
Types of Bonuses Offered by Foreign Exchange Brokers
Two types of bonuses can be obtained from an online forex broker: a first deposit bonus and a no deposit bonus. Both types of bonuses are credited to your new online trading account.
- First Deposit Bonus – this type of bonus is awarded by the online forex broker upon receipt of the first cash deposit. Some online foreign exchange brokers offer as much as 200 percent of the initial deposit as a bonus.
- No Deposit Bonus – with this kind of bonus, no initial funds are required. The trader receives the bonus when opening a live account with the online forex broker. The free money can be used immediately to begin trading.
The bonus structure is what is commonly known as a “loss leader”, a business scheme used to entice new customers to open an online trading account, with the forex broker initially putting out money in the expectation of receiving more money back in commissions from the client.
In a perfect world, the bonuses offered by online foreign exchange brokers would appear to be a win-win situation. The client would receive extra trading capital while the broker would add a new commission generating customer. Sadly, we do not live in a perfect world.
A Typical Forex Bonus Scam
Unscrupulous brokers may decide that their customers really don’t deserve a bonus and get their money back, not in commissions but by taking back the bonus — and any profits made using the bonus funds —without asking. A typical scam of this type would go something like this:
- The trader receives either the first deposit bonus or the no deposit bonus in their newly opened online trading account.
- A number of successful trades that result in a profit would be made using the bonus funds.
- Both the funds and the profits made on the funds disappear from the account.
- The broker then accuses the trader of obtaining the bonus fraudulently citing some obscure rule set forth in fine print on their initial contract. The broker then justifies keeping the funds along with the profits made with the bonus.
This is just one of the ways an unethical broker might use the bonus to defraud their customers. Make sure that you read all the fine print on your initial contract with the brokerage before accepting the bonus money.
Should You Accept a Bonus?
Some forex brokers may have rules about day trading, or a rule concerning the amount of time a trade is held and other types of trading activity that the broker decides would violate their contract, thus — according to them — allowing them to keep their customer’s money.
Make sure you understand all of the conditions the broker has regarding the bonus funds before you open your online trading account and accept a bonus.