What is a Forex Cashback Rebate?
Forex cashback is a payment rebated to traders for every trade executed. Cashback providers refer traders to brokers and share the rebates they earn from every trade made by the client with that client. The model is becoming standard for most brokers in the industry. It’s also becoming a standard tool for traders to reduce costs.
Just as with any business, costs are as important as profits. One might even say they are more important. In the world of trading, you’re not always going to make a profit, but you will always have costs. For this reason, traders need to always explore ways to reduce their costs.
Forex rebates are paid to clients in several ways. Rebates are sometimes held by the rebate provider and withdrawn on a monthly basis by the client. In other cases, the rebate is paid daily into the trader’s trading account.
In some cases, the money is instead rebated by reducing the commission a trader pays on new trades. The mechanism by which a trader receives their rebate varies from broker to broker and from one rebate provider to another.
Rebates like these are now becoming popular not just amongst forex traders, but in the binary options and online sports betting too. Many of these industries give rebates to middlemen that introduce new clients to their platforms. Forex cashback is the next step in the evolution of this business model, where the cashback is shared with the client.
Forex rebates can vastly increase a trader’s scope to make profitable trades. By reducing the trading cost for each trade, trades that would previously have been too marginal to consider can become viable. This is especially true when trading on short time frames and scalping.
How Much Can You Save with Forex Cashback?
Rebates are usually either calculated on a round turn per lot, or on a spread. In the case of round turns per lot, the rebates average out at about $3 per lot. In some cases, they are as low as $1.50, while in other cases they can be as high as $7. These rebates can quickly add up if you are doing multiple trades a day, or a hundred trades a month. If a commission is low at the broker, the cashback can be as low as $1.50.
The basic round lot commission needs to be taken into account before assessing the rebate – it’s not just a case of choosing the highest rebate. And, remember, you are paying for all the services a broker is offering you. Some brokers offer more value-add services, research, and tools and can, therefore, justify charging more.
In the case of spreads, rebates are typically around 0.5 pips, though they can vary a lot, so shop around. Spread rebates can be as low as 0.1 pips and as high as 1.3 pips.
Some cashback rebate providers offer a tiered system, where the rebate increases with more trades. Rebate providers are sharing the introducing commission they receive from brokers with their clients. So, for the rebate provider, it makes sense to rebate a higher percentage of each commission as the number of trades increases.
Cashbackcloud offers one of these tiered programs with rebates increasing from 50 percent to 85 percent of the rebate being shared with the client.
When you open an account with a new broker, you will often receive a welcome bonus in the form of cash to trade with. Of course, this equates to yet another saving and is something to take into consideration when choosing a broker.
How to Join a Forex Cashback Plan?
Joining a rebate plan is very easy. Obviously, the first step is to choose a rebate provider. Cashbackcloud is one of the most comprehensive providers and gives its clients access to over 60 forex brokers.
You will first need to register with the cashback provider. This is free, and no credit card or other financial information needs to be provided. Once you have registered with a cashback provider you will be able to choose and connect with brokers.
You don’t have to choose a single broker, and once you choose a broker you aren’t stuck with them. In the case of Cashbackcloud, you can open accounts with up to thirty brokers. In some cases, you can even open a new account with a broker where you already have an account.
While costs are a vital element of your trading plan, your choice of broker should not be based on cost alone. There are other factors to consider too, including the number of available markets, the trading, and analysis tools on the platform, and value-add services like research.
Once you have opened accounts with one or more brokers and funded the account, you can begin trading. Your rebates will automatically be credited to your account every time you make a trade.
Since forex cashback is a way to reduce costs, you should keep tabs on your overall costs, and how much you are reducing those costs with your rebates. When opening new broker accounts, make a note of the commission rates and spreads, and read the terms and conditions to make sure the broker is not going to increase your trading costs to offset the rebate.
Managing your rebate plan should be a part of a regular program to monitor your costs. This doesn’t just include trading costs, but overheads and expenses too. This program should also include keeping regular tabs on the spreads and commissions you are paying, as well as those available from other brokers.
Remember, once you are registered with a rebate broker, you can open accounts with several brokers, so keep shopping around to make sure you are getting the best deal possible.
Finally, be careful not to overtrade due to the lower effective commissions you are paying. While lower effective commissions will make some more marginal trades viable, you are still paying for each trade. So, make sure each trade you make has positive expectancy when all costs are included.