What Is Rebate In Forex Brokers?

Many forex brokers promote their brands by mentioning rebate as one of the benefits that traders may receive along with profits from regular trading activities. But actually, what is rebate in forex trading?

Many forex brokers promote their brands by mentioning rebates as one of the benefits that traders may receive along with profits from regular trading activities. But actually, what is a rebate in forex trading?

Rebate in forex trading is a part of the commission received by Introducing Broker (IB)/Affiliate that is being imparted to the traders they have referred to the broker. To understand it, first, you need to know about the affiliate/IB scheme that is widely used in the forex industry.

Forex IB Scheme

There are three parties in the system, that is broker, IB, and client (trader). The broker provides facilities that enable clients to trade forex. However, in order to gather clients, they sometimes seek third parties to solicit people or to introduce them to new communities. These third parties are known as Introducing Broker, but there are also some who stay in the system as an Affiliate. In exchange for introducing new clients, the broker will give them a certain percentage of commission in line with their trade volume or balance deposit.

As the side that connects directly with the clients, IBs might decide to impart some of the commission they received to the clients; thus give additional benefits for clients that have joined the broker through their introductions. Alternatively, brokers can also rule that a part of the spread will be returned back to their clients through IBs.

In these schemes, trading terms and requirements are usually the same as if the clients joined without IBs mediation. However, the prospect of rebate often motivates people to join through IBs. While on the broker side, it will give them an advantage because people who join through IBs are usually gathered in the same community, thus creating group loyalty. IB scheme also enables the forex broker to probe deeper into the market.

Rebate Scheme

How the broker imparts rebate? Check the following example:

• Mr. A opens an account in ABC Broker through Agent Z. Agent Z here takes the role of an IB.
• Mr. A trades normally using the facilities provided by ABC Broker. In this event, the IB (Agent Z) will receive a commission at 1 pip per lot traded.
• Because Mr. A is in a rebate agreement with Agent Z, he will receive 0.7 pips as a rebate from each transaction.

In this scheme, the amount of rebate may differ between one broker and another. As well, the amount of rebate between one IBs and another may differ although they belong to the same broker. The main point to remember is that rebate will be given to the client based on every closed transaction.

It means whether your trades are successful or not, you will still be given the rebate. Therefore, it can be said that rebate enables us to gain a bit of extra from successful trades or alternatively, soften the pain of losing some trades.

Upside And Downside

On the upside, traders can get rewarded simply by signing up for a broker and trading. This is obviously good news, particularly if you are a novice who meets losses more often than profits despite (probably) trade larger amounts of volume than an experienced trader.

See also: Volume Comparison in Forex Brokers

However, you have to be aware not to rely on the rebate too much. The rebate does not mean it's okay to lose trades; after all, no matter how many rebates are given, the best profit in this business is from trading profits. It is also advisable for you to exercise money management as if you will not receive any kickbacks. This is so you can allocate your capital wisely and learn from actual trades instead of relying on rebates only.

Aside from rebate, other benefits you can get from forex broker come from other facilities like bonus schemes and even some analytical tools. Visit here to learn how to utilize them the right way.