How Do Forex Brokers Make Money?

When you choose to trade forex, you have to be aware of the high risk involved in navigating the forex broker scene. With 2020 retail investor losses differing by UK broker, you must be able to understand how forex brokers make money. A topic that we explore in the article below.

By Justin Grossbard / Updated: Friday, January 31st, 2020

Curency Movements Image

How do forex brokers make money header

Forex Broker Fees To Consider

To answer the question of how do forex brokers make money, we have to understand the business models of forex brokers and what this means for each style of account. We go over the types of forex brokers and then the three key ways a forex broker makes their money. Quickly jump to each topic using the shortcuts below:

    1. ECN Brokers v Market Makers – Types of forex brokers
    2. Spreads – The difference between a currency pair’s bid price and ask price
    3. Commissions – A set fee charged by ECN forex brokers based on volume
    4. Other Fees – Deposit/withdrawal fees, inactivity, and premium features

Why Understand How Forex Brokers Make Money?

To choose the right forex broker for you, it’s imperative that you’re able to understand how forex brokers make money.

While most forex brokers have a few common charges that you’re going to need to become familiar with, we dive a little deeper to help you fully understand the relationship between forex trader and forex broker.

To become a consistently profitable forex trader, you’re going to have to understand where your money is going. We’re here to help you choose the best forex broker and trading account type, for your own trading style.

Broker Reviewed

Pepperstone
Interactive Brokers
eToro
IG
City Index
Our Rating
9.17
8.17
7.17
6.67
6.83
71.4% of retail CFD accounts lose money
Trade CFD and assets
62% of retail CFD accounts lose money
75% of retail CFD accounts lose money
72% of retail CFD accounts lose money

Regulations and Licenses

Feature
Pepperstone
Interactive Brokers
eToro
IG
City Index
FCA (UK)

Brokerage

Feature
Pepperstone
Interactive Brokers
eToro
IG
City Index
No Commission Account Spreads From (EUR/USD):
1.0
3.0
0.6
0.5
Commission Account Spreads From (EUR/USD):
0.0
0.1
Commission (per 100k traded side trip)
GBP £2.295 Side Trip (MetaTrader)
USD $1mil = 0.20% (IBKR)
Minimum Deposit
GBP £200
$0
USD $200
Volume Commission Rebates
Has Islamic Account
No Inactivity Fees
Funding Methods
3
4
6
4
6
No Deposit/Withdrawal Fees

Markets and Instruments

Feature
Pepperstone
Interactive Brokers
eToro
IG
City Index
Forex Currency Pairs CFDs
61+
115+
47+
80+
84+
Cryptocurrency CFDs
5+
98+
5+
5+
Index CFDs
14+
26+
13+
34+
21+
Share CFDs
60+
1000+
2000+
12000+
4500+
Commodities CFD
15+
12+
38+
29+
Stockbroking
50,000+
2000+
Retail Maximum Leverage
30:1
14:1
30:1
30:1
20:1
Professional Maximum Leverage
500:1
400:1
200:1
400:1

Trading Platforms + Tools

Feature
Pepperstone
Interactive Brokers
eToro
IG
City Index
MetaTrader 4 (MT4)
MetaTrader 5 (MT5)
cTrader
Proprietary Platform
Automatic / Robot Trading
MetaTrader 4 only
MT4 only
Social + Copy Trading
Standard Stop Loss
Guaranteed Stop Loss Order
Guaranteed Negative Balance Protection
ESMA regulated territories only
Demo Account
Unique Feature 1
Commission rebates for active traders
125 Markets, 31 Countries, 22 Currencies
CopyTrader functionality for automated trading
Guaranteed stop loss orders
Best for beginners
Unique Feature 2
Award Winning Customer Support
Earn interest on idle cash balances automatically
Social trading interface across CFDs

Overall

How do forex brokers make money FAQ

Stop hunting is where price action moves in a way to trigger clusters of stop orders above or below key support/resistance levels.

Its human nature for traders to place stop orders in groups above or below these technical levels and stop hunting is the practice of the market (or broker), ensuring price triggers these orders.

Stop hunting is a natural market phenomenon that ensures big volume orders can be filled. The broker is not after your stop loss.

If market maker forex brokers are unable to match opposite orders on their book, they will often take the other side of the trade themselves. This means that they will make money if you lose.

ECN forex brokers, on the other hand, offer traders direct access to the best bid and ask prices. They make money on charging commissions so would rather you make money and keep trading high volume.

Forex brokers are not traders themselves. Even if a market maker is taking the opposite side of your position, it’s not because they’ve done their fundamental analysis and disagree with your rationale. It’s purely for risk management of their overall book.

Forex brokers are risk managers first and foremost. They focus on the order flow coming in and making sure that the entire book is never in danger of hurting the broker’s business.

Final Thoughts On How Forex Brokers Make Money

When it comes to making a final decision on whether you should trade with an ECN forex broker or market maker, there is no correct answer.

There is no such thing as the right broker. No one type of broker is better than another, simply because of how they make their money. Each business model has its pros and cons that will appeal to different types of individual traders.

Would you rather trade on spreads as low as zero with commissions, or would it work out better for your trading if you just paid a commission-free spread markup?

Maybe for your trading strategy, you require fixed spreads that only a market maker can offer?

These are questions that only you as an individual can answer!

In conclusion, it’s worth ending this article by saying that contrary to popular belief, no forex broker is your enemy.

Go with whatever works for you and your trading style.

Back to top

We use cookies to ensure you get the best experience on our website. By continuing to browse you accept our use of cookies.

Chat now

Loading...

LiveChat Spinner