There is enough talk around to suggest that brokers or rather their spreads come across the traders’ profits. Spreads do decrease the pip difference between the opening and closing positions. There is nothing better than making sure that there’s going to be some profit or the other in the picture. Considering everything which comes into the picture though, a broker vs. Forex trader earnings does require a proper elucidation.
Revenue Relations between a Broker and Trader:
A broker simply relays the transaction orders of multiple traders. There’s obviously more traders operating in foreign exchange every single moment against the number of brokers. This is a completely mutual relation where both the parties require each other. Coming to the revenue-specific point of relation though, it comes down conclusively to one single pointer – leverage.
Leverage is a basic reason why individuals come into this market with their investments in the first place. There is nothing better than getting more returns from an investment. That is just the possibility which leverage provides. It simply multiplies the investment a trader makes.
There’s a catch though. Increasing a profit in multiples, it can also negatively affect a Forex trader average profit.
Think of it this way. Say a trader invests $100 in his trading account with a leverage of 100:1. There are higher leverages around but let’s stick to a lower one. The investment goes live at $10,000. A 1% profit amounts to $100 all the way back again. From the point of view of the trader, this is a 100% ROI.
Now the actual profit is only $1. The rest $99 comes out of the brokers’ pocket.
However, if that trader ends up losing out in the transaction by just the same percentile, there’s an obvious loss of a same amount. In this case, it’s that trader who ends up paying $100 to the broker.
Forex Trader Earnings against Broker Earnings:
Continuing with the previous example, what’s obvious is an impossibility of both parties earning at simultaneously. Most professional traders do end up making profits than losses. Considering brokers who relay pro traders, reason suggests that they’re the ones always ending up on the poorer side of things. Instead, the picture cannot be far from this.
Brokers not only relay trades, they liaise for traders when it comes to investment. Even in case of pro traders, a broker apparently will liaise for more than pro.
If it’s a freelance broker, then there’s a basic fact that they won’t be earning much if their client trader keeps on garnering profits.
If it comes to traders from Forex trading firms or even banks, these brokers are on payroll. It doesn’t matter if they have to relay orders for the highest earning Forex traders. That’s for the firm to ponder.
Point worth mentioning, this is just why trading firms are the best way forward for every single newbie and even serious trader. Why?
Well, simply because brokers in firms will not think about their earnings. This is the only case where higher Forex trader earnings mean the same for brokers.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.