What is a Deposit Bonus in Forex Trading and How Does It Work?

02 October 2020

The Forex deposit bonus is one of the most common promotional offers the brokerage companies use to entice new customers. The main idea behind this is that in exchange for depositing the money on their trading account, traders get either a fixed amount of money or a certain percentage of their initial deposit.

In the majority of cases, this type of bonus is paid only once and only applies to new clients. However, here it is worth mentioning that there are also some Forex deposit bonus brokers who offer their clients this type of benefit every time they deposit money on their trading account. These are also known as reload deposits.

The deposit bonus offers are attractive for many market participants because it allows them to increase their trading capital by a certain amount and use these sums for opening new positions.

When choosing the brokerage company, a good Forex trading deposit bonus offer can definitely be a plus. However, it is worth remembering that traders also need to pay attention to other important factors such as the size of spreads, the commission structure, as well as speed and quality of the execution of trades..

Forex Deposit Bonus Explained

Before moving on to the discussion of the advantages and disadvantages of Forex deposit bonuses, it is worth addressing how one can receive this type of bonus. Now, the exact terms and conditions for benefiting from this type of promotion might vary from broker to broker. However, generally, this involves taking the following steps:

Registering for the trading account, at the broker’s website
Verifying the email and telephone number
Verifying the identity by scanning or posting the copy of ID card or passport
Making the initial deposit to the trading account

Once the trader completes all of these steps, he or she should receive the bonus amount on the trading account. The time of processing this payment does depend on the broker. Consequently, with some brokerage companies, it might take just several minutes, which with others it might take more time. However, in most cases, traders should receive a bonus amount within 24 hours after making the first deposit.

Ordinary Forex Deposit Bonus

At this point, some people might wonder about what are some of the benefits with the typical Forex Deposit Bonus 2020 traders should be aware of. Firstly, it is worth mentioning that here we are dealing with two possible options.

In the first case, the brokerage companies offer traders a fixed amount of money for trading, in exchange for them making the first deposit. For example, the broker might offer the market participant $100, once he or she makes the initial transfer to the trading account.

Another even more common option is the brokerage company to give the new clients the sum, which will be the equivalent of the specific percentage of the initial deposit. However, here it is worth noting that the majority of brokers do impose some sort of cap on these bonuses.

After all, it makes sense that if the trader were to deposit $100,000 on an account with a 20% bonus offer, not many brokerage companies will be willing to grant them $20,000 as additional trading money. Consequently, it is very common for brokers to impose some upper limit on those payments.

For example, the promotion might offer traders a 50% deposit bonus of up to $3,000. This means that for depositing $6,000, the market participants will receive $3,000. However, if they deposit more than $6,000, the bonus amount will still remain unchanged at $3,000. This allows the brokerage company to put some limit on the amount of money they spend on bonuses, while still attracting some new clients.

It goes without saying that these types of bonuses do have significant advantages. In many cases this allows the market participants to increase their initial capital considerably. Even if the traders get an extra $500 or $1,000 in bonuses, it can have some meaningful impact on their earnings.

Despite these advantages, it is worth mentioning that the majority of the Forex deposit bonuses are paid only once to the new clients. Consequently, if the trader likes the trading platforms and decides to remain with the same broker, he or she might not receive any bonuses. Consequently, those traders who are concerned about this might look for other options.

Other Types of Forex Deposit Bonuses

At this stage, it is worth mentioning that many brokers understand that a significant portion of traders want their loyalty to the brokerage company to be rewarded, rather than just receiving a single bonus payment when opening the trading account.

Consequently, some brokerage companies offer the market participants bonuses for every time they deposit money to their trading account. These are also known as the reload bonuses.

Now, here it is worth noting that in most cases the percentage bonus might be lower than with the ordinary welcome bonuses. This makes sense since the regular payments associated with the reload bonuses represent a much larger amount of long term expenditure, compared to in the cases of the welcome bonuses.

However, it goes without saying that these types of bonuses are popular with a significant number of traders. Here, instead of just receiving a single bonus payment, the market participants can increase the size of their trading capital considerably due to these reload bonuses. In this case, the traders not only receive benefits for opening the new account but also for every time they make a deposit.

Just like any other type of Forex bonus, the reload bonuses do have their own disadvantages as well. The fact of the matter is that some of the traders who are already earning consistent payouts from trading, no longer need to deposit anything to their trading account, since its size is already enough to fund their trades.

This means that those traders will not receive any bonuses if they do not make additional deposits, even if they maintain the high trading volume. Consequently, such traders might be more interested in Forex accounts which offer cashback bonuses. In these cases, the actual amount of the bonus depends on the number of executed trades, rather than on the size of the additional deposits.

Other Considerations with Forex Deposit Bonuses

It goes without saying that when choosing between different brokers, the decent deposit bonus is a plus. However, it is important not to make this the only decisive factor in the decision-making process.

The fact of the matter is that there are several other factors that can have a sizable impact on the trader’s earnings. Firstly, one thing traders might want to avoid is the commission per trade. The standard fee typically ranges from $5 to $10. However, if the market participant makes even a moderate amount of trades per day on a regular basis, then this expense can eventually add up to a significant amount.

Therefore, earning a $500 as a deposit bonus is helpful; however, if it ends up consumed by the trading commission in a month, then this might not be that useful. Luckily, there are plenty of commission free trading accounts which traders can make use of.

Another major consideration here is the size of the spreads. Obviously, this is an unavoidable expense, since the brokerage companies also need to earn some income. However, the reality of the matter is that brokers have their own policy on spreads. Consequently, spreads with some brokerage companies tend to be more competitive than others.

It is a relatively less visible expense for traders; however, just like in the previous case, it can make a significant difference in the long term. This is especially true for scalpers and day traders, who typically execute a large volume of trades within a short period of time.

Therefore, when making a choice between a broker with tight spreads and no bonus, and the one with wider spreads and deposit bonus, it might be a good idea for traders not to rush into favoring the latter category. In some cases, it can be a better idea to choose the one with no deposit bonus, but with much more favorable spreads, depending upon the circumstances.

Finally, it is also helpful to be mindful of the fact that the difference in the quality of the service, as well as the reliability of the broker, is important. If a broker has poor quality service, with slow execution of trades and dealing desk, it can create a lot of problems for traders.

For example, traders might find some good entry or exit points for their trades, but they might get rejected by the dealing desk, or the platform might not execute the trade soon enough. It is understandable that a couple of seconds worth of delay might not pose serious problems most of the time.

However, this is not always the case. Here it is worth remembering that in times of the major economic announcements, such as the latest interest rate decisions, the GDP, the consumer price index, or unemployment rate publications can lead to much higher volatility for the currency pairs, than under the normal circumstances. In some cases, the pairs might gain or lose 50 or even 100 pips just in the course of several seconds. Consequently, any delay for the execution of the trade, due to the involvement of the dealing desk or for any other reason can lead to traders taking significant losses.

Therefore, the quality factor should never be underestimated. If there is a choice with a broker with a sizable deposit bonus, but with poor execution of trades and a dealing desk, and the broker with no deposit bonus, but high-quality service, then it might be a worthy decision to favor the second option.

The fact of the matter is that traders sooner or later will spend their bonuses; however, they will still have to deal with the poor quality of trade execution by the broker. Consequently, it makes sense to make the quality a priority over the size of the trading bonuses.

Why trading with a deposit bonus may not be the best idea

Deposit bonuses come with both advantages and disadvantages, and it's crucial to consider these aspects before diving into the trading arena. Let's first explore the positive aspects. On a positive note, bonuses provide traders with increased purchasing power, opening up avenues for potential profits. However, it's essential to tread carefully, as there are downsides to these bonuses.

Contrary to what traders might assume, bonuses often come with conditions that alter the perception of the extra funds. When a broker grants a $200 bonus, it doesn't equate to free funds for personal use. In reality, traders usually have to generate $200 for the broker through trade commissions, essentially converting the bonus into a discount on trading fees.

Moreover, deposit bonuses bring forth a set of challenges for traders, including stringent terms and conditions. These conditions, imposed by brokers, must be fulfilled before traders can withdraw the bonus. Unfortunately, these terms can be overly restrictive, compelling traders to abandon their established trading strategies and risk management rules.

Another issue lies in limited withdrawal options, where brokers often mandate traders to achieve specific trading volumes before allowing fund withdrawals. Additionally, deposit bonuses may impose potential trading restrictions, such as time and volume constraints that could be impractical or impossible to meet.

Beyond these logistical challenges, there's a psychological impact to consider. The desire to maximize the bonus amount might drive traders to take unnecessary risks, leading to potential losses. In the worst-case scenario, habits formed during the bonus phase, such as excessive trading or risk-taking, may persist in regular trading, potentially causing long-term harm.

It's essential to recognize that there are diverse approaches to making money in the market, ranging from scalping and day trading to swing and position trading. However, many bonuses incentivize traders to adopt a day trading approach with multiple orders, catering to brokers' interests in collecting more trading fees.

Traders, especially beginners, should approach deposit bonuses with caution to avoid falling into a cycle reminiscent of addiction, where the constant need to be in a trade mirrors the behavior of gamblers in a casino. Each trader must experiment with different strategies to find what works best for them. If one decides to accept a bonus, a thorough examination of the terms and conditions is imperative to mitigate potential drawbacks and steer clear of the adverse effects that bonuses can inflict on trading practices.

Forex Deposit Bonus Types - Key Takeaways

Forex deposit bonus essentially represents the payment which the broker gives to the client in exchange for making the deposit on the trading account. This promotion can either be represented by the fixed amount of money or as a percentage of the deposited amount.
The reload bonuses are just one type of deposit bonus. Unlike with an ordinary welcome bonus, in this case, the trader receives payments from the broker, every time he or she deposits the money on the trading account.
Despite all of the benefits of Forex deposit bonuses, it is useful for traders to keep an eye on other factors as well, when choosing the broker, such as the size of spreads, commissions, and the quality of the execution of trades.

FAQ: Forex Trading Deposit Bonus Types

What are the typical requirements for Forex traders to qualify for the reload bonus?

The requirements for Forex traders qualifying for the reload Forex trading bonus are in general quite similar to that of the welcome bonus. Firstly, the market participants have to fill out the necessary forms on the website of the brokerage company in order to register for the new trading account. After completing this step, the traders have to verify their email and mobile phone number.

Once their account has been set up, traders can make the deposit and receive their first bonus. In the case of the conventional reload bonuses, the trader will get a bonus every time he or she deposits the money on the trading account.

Now here it is worth mentioning that many brokers might have some additional conditions imposed on reload bonuses. For example, there can be a cap on the maximum amount in bonus the market participants will receive for making each deposit. Or, alternatively, the brokerage company might require its clients to make a predetermined minimum amount of deposit, for them to qualify for the bonus.

What mistakes can traders make when choosing the Forex bonus deposit account?

One of the common mistakes some traders make when dealing with Forex bonus deposits is that they base their entire choice of brokers only on this one factor while ignoring the rest. The fact of the matter is that in this case, traders might choose the brokerage company which has wide spreads or commissions per trade. Consequently, gains made from this deposit bonus Forex endeavor will most likely be neutralized by the additional expenses traders might face.

Another major mistake some market participants make is not reading the terms and conditions for the given Forex deposit bonus. This can be problematic, since if they do not meet all of the necessary requirements, then they most likely will not get the bonus.

Finally, some traders might decide to deposit more money on their trading account than they are comfortable with, in order to maximize the size of the bonus they receive. As a result, they might become more nervous during trading and make some poor decisions due to their emotions. As a result, they might lose more compared to their bonus earnings.

How does the Forex deposit bonus differ from other types of bonuses?

Obviously, the exact nature of differences depends on the type of bonus in question. For example, as its name suggests the no deposit bonus is different from the Forex deposit bonus in the sense that here, the brokerage companies do not require traders to transfer any amount of money to their trading account in order to receive the bonus Forex total sum.

Another important difference between those two categories is the fact that the size of the no deposit bonuses is typically within the $5 to $100 range, which is in general considerably smaller than the deposit bonuses.

The Forex deposit bonuses also differ from the cashback bonuses as well. In the latter case, the size of the bonus usually depends on the number of executed trades and commission structure of the broker. Consequently, in this case, the market participants do not necessarily have to deposit any money on their brokerage account in order to receive this type of bonus.

When do brokerage companies allow traders to withdraw their deposit bonuses?

The exact terms and conditions traders have to meet in order to be able to withdraw their Forex broker bonus depends on the policies of the brokerage company itself. However, the general rule here is to ‘clear’ the deposit. This essentially means to use the amounts in Forex trades.

Some brokers might require traders to execute just a single trade, while others might only settle for 2-3 or even higher numbers of trades. In addition to that, some brokerage companies might impose the date, before which traders will not be able to withdraw money from their account.

How do brokerage companies afford to offer deposit bonuses to their clients?

For some observers, the fact that so many brokerage firms are willing to give welcome bonus Forex promotions to their clients seems surprising. After all, how does this giveaway fit into their business strategy?

Well, the fact of the matter is that the majority of businesses in the world do have their own budgets for advertising. The brokerage companies are no exception to this. So instead of spending all of the budgets for this category online and other types of advertising, why not offer some portion of it to traders, in order to attract new clients? In many cases, this can be the most effective way of advertising.

Here it is also helpful to keep in mind that when it comes to the deposit bonuses, this promotional offer might reach thousands of people, but the company only spends money on those who have already opened the account and deposited their funds.

The brokerage company then can offset those expenses by the increased income coming from spreads, commissions, and swap payments. In fact, some Forex commentators even suggest that the brokerage companies might spend up to 1/4 of their income on spreads, on bonuses and advertising, while retaining the remaining 3/4 for other purposes.

This is obviously like a rule of thumb and every brokerage company has its own policies for advertising expenditure. However, this does suggest that at the end of the day, the brokerage firms might earn up to 3 times more income than they spend on bonus offers. Consequently, it is not surprising that these businesses are in a position to offer these sorts of incentives to their clients.

Finally, it is worth noting that for many brokerage firms, retaining the existing customers is also a very important priority. This is why some of them offer the reload bonuses. This gives their clients a strong incentive to keep trading with the same broker, which is also very important for the long term financial performance of the brokerage company.