Today I received an email from a trader who got himself into some trouble over his broker’s bonus offering.
I’m not 100% sure of the full details of his case, but judging from what he wrote, the likely scenario is as follows. He opened an account and received a deposit bonus of some amount – many Forex brokers offer such bonuses, offered as a top-up to your account deposit by percentage. He lost some money trading. The broker then wrote to him telling him that all he had left in his account was the bonus money, and if he didn’t deposit more cash, they would close his account. The trader now feels he has been unfairly treated.
It is very likely that this trader did not read the small print in the contract when he opened the account with this broker. Such account opening contracts usually state not only that bonus funds cannot be withdrawn or compose the entirety (or even a certain maximum percentage) of the account funds, but also that NO funds cannot be withdrawn until a huge minimum amount of trades have been made, once the bonus has been accepted! How much is this minimum? Typically, about $10,000 worth of trades per every $1 deposited, which means 100 trades at 100 to 1 true leverage. After all, why would brokers offer free real money when their profits are, usually, based upon their clients losing money? No, bonuses are offered to trap traders with the broker until they blow their accounts or otherwise lose more money than they would have if they had not received the bonus. Think about it: a trader depositing $5,000 will risk more money if he is given a $5,000 “bonus” to add to his funds, but will then find he cannot make any withdrawals from the account at all until he has made a certain number of trades, even from the $5,000 he initially deposited!
Generally, bonuses are a trick by brokers to make their clients to lose more money more quickly. Note how the best Forex brokers don’t usually offer any “bonuses”, but emphasize instead regulation, execution, and liquidity. Note also that you don’t usually have to accept the bonus offered.