The crackdown on forex and binary options brokers by European regulators has already curtailed profits or put many firms out of business. Even for brokers that have survived the purge, a cloud of uncertainty remains and in the recent time industry chatter seems to have shifted to possible fate of forex bonuses.
Bonuses are industry norm
Bonuses are one of the effective marketing tools used by forex brokers. The bonuses are typically given to new traders who have opened an account with a brokerage. Bonus amounts and conditions vary from broker to broker.
One broker may gift you $100 if you deposit $500 into your forex account. Another broker may try to win you over with an offer that matches your deposit 100% up to a maximum of $1000.
Some brokerages do not require you to make a deposit before they can credit a bonus to your account. In such cases, all they will require is that you create an account and verify it. After you do that, then they give you free money in the form of bonus to trade with.
Forex trading bonuses are great for the traders thin on deposit to start off. In many cases, people who are new to forex trading use the bonus amount to test the waters and gauge their trading skills before their commit real money for trading.
Bonus terms and conditions
However, forex bonuses have been a subject to controversy mainly because of the strings attached to them. That is why concerns have heightened European financial regulators who have been aggressive in cracking down unscrupulous retail forex brokers, could be eying a ban on bonuses as part of the measures to protect investors.
The major complaint about forex bonuses is that they tend to serve the interest of the brokers rather than the trader. For instance, in most cases, traders who accept bonuses may find it difficult to withdraw funds from their accounts until they execute a certain trade volume. Interestingly, those conditions are hardly brought to the attention of traders when they are signing up for accounts and accepting the bonuses.
The Cypriot securities regulator sent a circular to forex firm reminding them that they should ensure that their clients clearly understand their bonus terms. Specifically, the regulatory requires brokers to delink bonuses to trading so clients can withdraw from their account any time without restrictions.
The future of forex bonuses
With the recent wave of a crackdown in the retail forex sector, there is a valid cause for concern regarding the future of bonuses. Financial regulators in Belgium just decided to issue a blanket ban on all retail trading in leverage financial assets such as CFDs, binary options and forex. Regulators in Germany, France, the Netherlands, Denmark and Italy have also moved to tighten regulation of the industry.
Israel, which has openly been tougher on the regulation of retail trading in so-called risky financial products, has become the model for regulators in Europe and other parts of the world targeting options and forex brokers.
However, as long as brokers play safe with bonuses in the sense that they do not make it difficult for clients to withdraw their funds at will, it is unlikely that Europe or any other region will ban forex bonuses. A ban on bonuses could potentially alter the landscape for forex firms as it would make it difficult for them to attract new clients.