Wednesday, July 14, 2010

Getting the Most out of Trading : Using a Forex Spread Rebate Service

When you want to get profit in a market where trading is hard and competition is extremely aggressive you need to take advantage of every tool you can use to reduce your trading costs. There is little you can do in forex trading but one of the most practical things almost anyone can do is to find a forex rebate service to reduce the cost of their trading a little bit. Even though this cost reduction does not make a system "more profitable" in any way it does allow us to reduce our trading costs to a significant degree something that may decrease the loses we get simply because of our net trading volume (spread costs). On today's post I will talk a little bit about this rebate services, why they exist, how they work and why you should definitely join one if you are expecting to trade the forex market for an extensive period of time.

When you are using a forex system to trade the market you will inevitable get in and out of the market with a certain frequency. Some systems will have a lower trading cost since they will trade only 20-40 times each year while others will have larger trading costs since they will trade frequently. Each one of these trades will have the spread (the difference between the price at which you buy and the price at which you sell) as their fixed trading cost plus any additional commissions if you are using an ECN broker.

The cost of trading in forex is indeed quite small and for most systems (except scalpers of course) the spread cost is not determinant to their profitability in the sense that it often constitutes less than 5% of their aimed profit or loss. For some systems the cost is even negligible as it is less than 0.5% of their exit target values. However anything we could do to reduce this cost should be done as having lower spreads will definitely contribute to decrease our costs and therefore it will make us "lose less money" to get into trades.

How do we do this ? In forex trading there has been a figure for some time (in the form of introductory brokers) which allows us to get some "cash back" as a "benefit" from joining through a given broker partner. The truth behind this is that the introductory broker gets some commission from the broker's spread (for example 0.5 pips) however there is no incentive for you to join through them instead of the original broker and for this reason they give you part of their earnings as a way to encourage you to join through them. In the end everybody wins, you get some part of the spread back and your introductory broker also gets a piece of the cake. There are several well known companies that provide this service but perhaps cashbackforex.com is the most reputable and well known rebate provider (I personally use them on several different brokers).
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Usually what happens is that you are given a certain amount of each trade's spread back and this money is paid either directly to your trading account every month or more conveniently to your PayPal account. Having this money sent to your PayPal or alert-pay accounts is actually very good since it allows you to withdraw some money without paying any transfer fees from your broker. So in the end you are saving money in the form of trading costs and you are also saving withdrawal fees since you are getting some money directly into your PayPal account. Recently an Asirikuy member told me that this cash back deposits onto his account were perfect since they allowed him to pay for VPS costs every month without having to actually withdraw funds from the trading account, this is a perfect solution to pay for small additional trading costs (like a VPS) through the offset of spread expenses.

So as you see, even though this cash back services will not increase the profitability of your system in anyway they will allow you to offset the trading costs of a long term profitable system and obtain some money without any withdrawal fees directly onto your PayPal account. This money can then be used for other trading costs such as a VPS or it can be saved and added back yearly to your trading account. In the end, it is always a good idea to use a cash back service since any reduction in trading expenses is always welcome. Do you know any other good and reliable cash-back introductory brokers ? Feel free to leave a comment :o) !

If you would like to learn more about long term profitable systems and how you too can start building systems with a high like hood of long term success please consider buying my ebook on automated trading or joining Asirikuy to receive all ebook purchase benefits, weekly updates, check the live accounts I am running with several expert advisors and get in the road towards long term success in the forex market using automated trading systems. I hope you enjoyed the article !

2 comments:

Hansen said...

This is indeed a good idea, Daniel.
I use it myself too. Beside Cashbackforex as you mention, I also use someone called the aslan group. The benefit with cashbackforex as I see it is that they are actually regulated in the US and offer many mt4 brokers

Tcxmon said...

Daniel-

I setup my accounts at Forex.com through Trader's Choice FX to get the rebates. They can be reached at:

http://www.traderschoicefx.com/

Chris

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