How Do Forex Brokers Earn Money In Online Forex Trading?
This question often arises in most traders when they have just started their online forex trading career in the foreign exchange market. It is because any forex broker website or platform never charges a direct fee from their client for offering various services and access to the foreign exchange market.
However, any forex broker website or platform does not provide these services for free. There might be some type of source of income behind providing all these services.
Concept of Spread
Earlier, in the foreign exchange market, the forex broker websites used to earn money through transaction fees, different types of commissions, registering fees, etc.
While creating a forex account on any forex broker website, the trader had to pay a registering fee to the website. Only after paying this fee, they were able to access the foreign exchange market for online forex trading.
While performing any trade in the foreign exchange market, the trader had to pay a transaction fee to the forex broker website. Regardless of the success or failure of the trade, the trader had to pay a certain amount to the website for trading.
Lastly, the trader had to pay a certain amount of commission to the website after every successful trade. The amount of commission depended upon the size and success of the trade.
Thus, these were the three means through which a forex broker website could earn money before. However, now the means of earning money for a forex broker website has changed.
Now, instead of charging different types of fees from their clients for online forex trading, these forex broker websites earn from the spread. Spread is the difference between the amount at which a trader is ready to sell a specific currency and the amount at which another trader is ready to buy the same currency.
The amount a trader is willing to give is always higher than that asked by another trader. Thus, the forex broker website facilitating this trade is always able to earn some amount of money on every trade that happens on its platform.