Forex rebates are cash back schemes offered by affiliates and other FX referral services that provide an incentive for traders to earn a refund on the spreads and commissions paid to a Forex broker. Forex rebates are proving to be hugely popular among retail as well as institutional traders and are even sometimes considered to be highly preferred than any other forms of Forex bonuses. So, how do you earn cash and reduce your overall cost of trading through Forex rebates? Read on to find out!
The Basic Principles & Inner Workings Of Forex Rebates
Let us consider the scenario where you are opening an account with an FX broker on your own without going through any affiliate or a referral. In such a case, there is no middleman between you and your broker, and you deal directly with your broker by paying the full markup spread, commissions, and SWAPs. For instance, if you are trading the GBP/USD pair through a standard STP broker, you will be quoted a minimum spread of at least 2 to 3 pips during normal market conditions; however, the spreads can increase by as much as 5 to 10 pips during highly volatile or low-volume sessions. If you are using an ECN broker, you can enjoy a reduced spread of around 1 to 2 pips, but you will have to pay a commission per trade that is directly related to your trade size. And if you are a long-term trader that holds on to overnight trades, you will also have to pay the SWAP fee, which can either be positive or negative.
The trading costs mentioned above are how a genuine and reliable broker makes money from their clients. Therefore, the more a trader trades, the more profit, a broker generates. In this scenario, the entire profit accrued from a trader’s account goes directly into the broker’s pocket. But when it comes to affiliates or referral traders, there is a slight twist to the way how the broker generates its revenue.
A Forex broker is ultimately a business that requires more traders to be a part of its service portfolio to generate more revenue. Therefore, along with its marketing efforts, almost every Forex broker will have an affiliate channel that allows third party advertisers, marketers, individuals, and even Introducing brokers to refer traders back to the broker. In return, the broker offers the affiliate a commission for every verified client and continues to award incentives or revenue to an affiliate by sharing a percentage of pips, commissions, and other fees according to the customer’s trading activities. Therefore, the broker shares its revenue with a referral, which is a win-win situation for all of the parties concerned.
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Nowadays, a particular group of introducing brokers, referrals, and affiliates has started utilizing the concept known as Forex rebates, which pays money to traders through cash-back or pip rebates. Even affiliates will find it hard to sustain a meaningful income from a small group of referrals, especially since the profits shared by a broker constitutes only a fraction of the actual cost borne by a trader. Therefore, to include more traders into their referral program, several cash rebate programs allow traders to be a part of Forex rebates program to share the profits enjoyed by the affiliate in the form of pip rebates.
Pip Rebates are easy to understand through the above example of trading the GBP/USD pair. Let us assume that a trader joins a broker through an affiliate. Therefore, the broker is bound to pay the affiliate a commission for sending in a verified trader and continues to reward the affiliate for every trade that the trader performs. For representative purposes, if a trader pays 3 pips spread on the GBP/USD pair to a broker per trade, the broker will pay 1.5 pips to the introducing broker or affiliate. Of course, the commission varies from broker to broker, as some brokers offer a smaller commission, while others offer a larger share of the revenue.
Once the affiliate receives the 1.5 pips commission, the trader is then credited with a fraction of the revenue, which can be anywhere between 0.1 pips to 1.2 pips (again for illustrative purpose only – actual pips may vary). Therefore, if a trader trades a higher number of lots, the affiliate receives more commission, and the trader receives more pip rebates. While the pip rebate might seem inconsequential at first, it depends on the number of lots and number of trades that a trader performs over an extended period of time. For instance, if a trader trades 1 standard lot and makes at least 5 trades per day, he can receive a cash-back of up to $1000 per month, considering a 1 pip rebate. Therefore, a $1000 extra per month can significantly improve the trader’s bottom line, and will help the trader to reduce the cost of trading. The same rule also applies for ECN accounts, where rebate programs are known to pay back anywhere from 10% to 60% of the commissions paid while opening a position.
Are Pip Rebates Available For All Types Of Trading Accounts?
Yes, Forex rebates are available for all kinds of accounts, even micro accounts, but the actual money value of the pip rebates for micro lots might be a lot lesser when compared to standard accounts. Nevertheless, several cash-back programs offer excellent pip rebates that can compound to a huge amount, especially for high-volume and high-frequency traders. After all, Forex rebates are indeed a win-win situation for all parties concerned, as the broker receives its fair share of revenue, the affiliates earn their commissions, and the traders can recover a part of their trading costs.
Are Forex Rebates Legal?
Almost all Forex brokers fully support the concept of forex rebates, and in case any broker doesn’t allow such a program, the affiliate will be informed beforehand about the company’s referral and discounts policies. Most mainstream Forex rebates programs will provide a list of accepted Forex brokers that support the pip rebate concept, and a trader can choose from a wide range of regulated and genuine FX brokers according to their preferences.
Can I Join A Forex Rebates Program If I Did Not Sign Up With An Affiliate?
It so happens that a majority of traders are not aware of a Forex rebates program, and they join a broker directly without the help of an affiliate. In such cases, brokers do allow traders to link an affiliate to their account at a later stage. Therefore, if you want to avail the services of a cash rebate program, you will have to add the relevant referral code to the affiliate section of your account.
Although the process in itself is not complicated, it might take a while to set up your Forex cashback account. You will have to get in touch with the customer service departments of both the broker as well as the referral agent to facilitate the smooth transitioning of accounts, after which, you are set to earn rebates automatically. However, not all brokers support the addition of an affiliate at a later stage, and you should consult with your broker to ascertain whether it would be possible.
Are Forex Rebates Programs Reliable?
There are plenty of established rebates programs available online, and most public FX forums do tend to review these websites in great detail. You don’t have to become involved with the entire rebates procedure, as the program will automatically credit your account with cash-backs as per the existing terms and conditions. Once you reach a certain limit, you can withdraw your rebates through the specified payment channels. Forex rebates are certainly more valuable and consistent than other types of bonuses, and it can supplement as an additional income source for high-frequency traders such as scalpers, who depend on fractions of profits on every trade.