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Friday, October 11, 2013

How to save some money in Forex trades

Transaction costs in Forex are rather small. Most brokers today don't charge an official fee per trade. The transaction cost is therefore reduced to the bid - ask spread. That's where Forex brokers make their money. At present this spread is not huge as we see in Western Union stores. It is a trading spread, and for Forex brokers is pretty low, for example most of them nowadays are able to offer a 2 pip spread or lower in the EUR/USD currency pair, that is 0.0002.

But even though trading costs are relatively low by comparison with stocks and options, it is still a cost which may become meaningful by trading often, increasing position sizes and using leverage to fictitiously control more lots (leverage is almost mandatory in Forex to make it worthwhile).

Well, one way to recover part of your trading costs in Forex is by subscribing to a platform that pays you back part of that Bid- Ask spread (these are usually third parties that have business relations with the brokers and offer this feature). That's how I met Cash Back Forex.

At you simply sign up for free, and from inside the site, using one of their links you navigate to the broker of your choice in order to open an account. As soon as you start trading you see how your profile page at Cash Back Forex shows the dollar amount that is being accumulated as part of the rebate on the spreads offered at the broker. What is even more interesting is that you can already be a client with certain broker (not introduced by Cash Back Forex), and still go to Cash Back Forex, sign up for free, let them know you are already using one of their selected brokers and provide them with your account number. You will start receiving the rebates.

To me this seemed a little too good to be true until I did it myself, and yes it does work.

Now how does this make sense? What's the catch?
I guess the only disadvantage to the trader is that by offering something like this they are promoting a more active style of trading. In the end brokers still make money off of the spreads, and though they make a little less by offering rebates and sharing a piece of the cake with Cash Back Forex they might make up for it if you trade more with them. I believe the sensation that you are recovering part of your transaction costs might make some traders out there not be too concerned about being more and more active. Which in the end compensates the broker. But, if you still keep your same approach and trading style, that offer doesn't need to psychologically bother you, and it is a good resource that has a good reputation and has been around for a few years now. This is nothing knew, just something I hadn't written about as I didn't have the"hard"  evidence.

So, if you are an active Forex trader and you use one of the brokers that Cash Back Forex deals with, you might want to use them and get some of those trading costs back.

I'm not affiliated with Cash Back Forex and do not receive any kind of compensation for this article. I truly believe, as it has been my experience, that they offer a useful service.

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