How Forex Brokers Make Money

Source: Investopedia 2020-06-02

Forex brokers are compensated two ways; firstly through the bid-ask spread of a currency pair. For example, when the Euro-U.S. Dollar pair is priced as 1.20010 bid and 1.20022 ask, the spread between these two prices is .00012, or 1.2 pips. When a retail client opens a position at the ask price, and then later closes the position at the bid price, the forex broker will have collected that spread amount. Secondly, brokers may charge additional fees. Some may charge a fee per transaction or a monthly fee for access to a particular software interface, or fees for access to special trading products such as exotic options. However, competition among forex brokers is very intense and the majority of firms servicing retail clients find they must attract customers by eliminating as many fees as possible. This has led many to offer free or very small transaction costs beyond the spread.

Some forex brokers also make money through their own trading operations. This can be problematic if their trading creates a conflict of interest with their customers, but regulation in this area has helped to significantly reduce this practice.

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Currency Pairs

How Forex Brokers Make Money

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