What is Forex Deposit Bonus?

what is forex deposit bonusOnce you have started being interested in Forex trading, you will encounter a bunch of Forex deposit bonus offers from brokers of any caliber. This makes it quite hard to choose a proper brokers, as you would certainly like to get more bang for your buck and get rewarded for making a deposit. Well, this is certainly a good deal as you would appreciate trading with 1,500 USD by only depositing 1,000 USD of your own money. However, it is vital to note that not every bonus is the same. To make things simple for you, Forex Trading Bonus has constructed this easy guide that explains what deposit bonus Forex means. This is an article that will be helpful for the beginners in Forex trading, however, many experienced traders that do not know much about the bonuses will find it helpful too. So let’s rock and learn more about the bonuses from Forex brokers and how to choose the best one & not get into a scam.

What is a Forex Deposit Bonus?

Once you have opened an account with a broker, you will be probably provided with a certain bonus. In general, this is a way for the brokers to:

  1. Attract the clients
  2. Increase the trading volumes
  3. Make clients more loyal

The bonus is nothing else but a way to compensate the expense a trader incurs when trading with a broker. As you already know, most of the brokers either make money on the spreads or on commissions and the bonus constitutes a certain gift from the broker, once you have provided broker with a certain income. In other words, deposit Forex bonus is a simple way to get compensated for the trades you have completed.

How Does it Work?

In order to get a deposit bonus you, of course, have to make a deposit, but hold your horses. Do not deposit anywhere before you have a good idea of what these bonuses are. So, the mechanics of the deposit bonus are rather simple:

  • you deposit money
  • you are provided with the bonus
  • then you have to accomplish a certain trading volume in order to withdraw the bonus.

In many cases, you will be offered huge bonuses that you cannot withdraw – do not go for such deals unless you really know what you are doing. These types of bonuses can be useful for some traders (breakout, scalpers, gap traders etc), but for the general audience, they are useless. So, what is the trading volume? This is one amongst the conditions that is often placed to restrict the bonuses from being withdrawn easily. Usually, this trading volume is measured in Lots (for MT4 brokers) and in most common occasions you would have to trade about 1 lot for each 5-10 USD of the bonus money.

So here is how forex bonus deposit offers work:

With your 1,000 USD and broker’s bonus of 200 USD you end up trading with a total of 1,200 USD on your account. If you want to make a withdrawal straight away, the maximum amount you can cash out is of course 1,000 USD. Usually, all of the losses will be subtracted from your own money, meaning that once you have lost 100 USD in trading Forex, you would be able to take up to 900 USD from your account.

As we have been mentioning the trading volume, let’s assume you have to complete 1 lot for each 8 USD of the volume. To calculate your trading volume, you should divide your bonus amount (200 USD) by the lot per bonus amount (8 USD per 1 lot), and you will get 25 lots. This means that once you have completed 25 lots of the volume, you will be able to withdraw any amount from your account balance.

How is Forex trading deposit bonus useful for the broker?

Well, as you already understood, once you have been given a bonus, you will be quite motivated to trade often. In many cases the bonus will come with a certain period of completion, so you would be restricted to complete 25 lots within 90, 180 or any other amount of days, depending on the bonus offer.

Let’s assume you are trading with a broker that offers spreads as low as 1 pip. If we assume that you are trading such currency pair where 1 pip constitutes 10 USD, it means that by the time you have completed 25 lots, you end up paying 25 x 10 USD x 2 or 500 USD in spreads. How is this possible and why do we have to multiply by 2 in the end? Simple! A broker asks you to complete 25 ROUND TURN lots, while you are paying spreads for each of the turns. As you can see, by the time you have traded just enough to take out your 200 USD of bonus, a broker has already made 300 USD of the net profit. Is it bad? Not really, as this is a situation where both you and the broker are making money. In fact, the brokers also have to incur lots of expenses and they are of course not supplied by the 0 pips spreads, so it may certainly occur that while you are receiving 200 USD back out of 500 USD spreads that you paid, a broker may not make any profit. However, many brokers still offer the bonuses just to get a higher amount of clients.

How to choose deposit bonus Forex brokers?

In general, choosing a good FX broker that offers bonuses should be initially done exactly the same way as selecting a great broker without a bonus. First, you should choose a broker that you trust. This should be a regulated broker with an outstanding reputation. An important point to mention here is that not only the brand where you open an account should be regulated but also the exact company that would accept your deposit should have an authorisation.

Once you have found some good Forex brokers that can open an account under a regulated company for you, check the conditions of the brokers. As a rule, you would have to complete a trading volume with most of the brokers, this is why you should get the broker that offers you as cheap trading as reasonably possible.

When you have examined the vast majority of the Forex broker bonus deposit deals, it is now the time to pick up the offer that suits you best. The rule of thumb here, never go for the volume you cannot achieve. The best is to select such a bonus where you have to complete no more than 80% of your regular trading volume within the given time of the bonus. Size does not really matter here, as you mainly need to rely on the size of the trading volume. In the majority of the cases you could hardly find a decent bonus that is bigger than 20%, however, do not worry. The main idea of a bonus is not to get it but to cash it out. This is why you should get only achievable deposit bonus Forex brokers deals.