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How Much Money Forex Brokers Make

Every day, some new Forex brokers start working. Is it really such a profitable business that is attracting so many entrepreneurs to run a Forex brokerage firm? How much money can a Forex brokerage make?

The short answer to this question is that a Forex brokerage can make a lot of money. However, it is not as easy as most people think. It is a challenging business and needs a lot of things to be managed and promote properly. It is not just a website, a sign up form and a trading platform. There is a lot more behind the scene.

So how much money Forex brokers make?

As you know, there are two kinds of Forex brokers: Market Maker and ECN/STP

The income of these two kinds of brokers are completely different from each other.

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Market Maker Brokers

A market maker broker doesn’t route the traders orders to the real currency market. It holds the trades with itself. That is why they call it market maker, because it is the broker that makes the market. So if you lose when trading through a market maker broker, indeed you are losing to the broker and the money you lose belongs to him. If you win, it is the broker who has to pay the profit you have made.

Therefore, traders losses is the main source of income for a market maker broker, because over 95% of the retail traders always lose and wipe out their accounts at least a few times before they give up or become profitable finally. So, a market maker broker makes a lot of money through the clients losses.

Market Maker brokers also charge spread and swap which is another source of income.

The other side of the story is the costs that running and managing a Forex brokerage has. A brokerage company needs a few teams for the accounting, compliance, tech, sales and marketing. For each 10,000 clients, they need at least a few account managers who take care of the clients deposit and withdrawal requests. They need a team to manage the platforms and take care of the technical issues. Also, it is not free to use the platform. It costs a $100,000 one time fee and $1,500 monthly fee to have an MT4 license. There are so many other apps and plugins that they might need to add.

If they want to be regulated, they will have to spend a lot of money and also deposit a lot more money in the banks as the guarantee and collateral. Based on the country they want to be regulated in, it can cost them from thousands to millions of dollars. Besides, they have to pay the compliance team constantly to follow up with the regulatory organizations.

When they manage to run such a complicated system, still one big problem is left. They have no clients. They have to advertise and attract people to sign up for an account. Their success depends on this. If they can promote the business and attract clients on a daily basis, they can cover the expenses, and chance are they make a lot of money. They have to keep the clients happy and satisfied. They have to offer an affiliate program that enables other webmasters to promote the brokerage and be compensated by the broker for each trader they refer.

Dealing Desk

Dealing Desk

Market maker brokers need another team which is called dealing desk. They have to sit at the computers and monitor the traders positions all the time. They have to be traders themselves. When they see a trader is doing good and goes for a position which can be potentially profitable, they take the same position with an ECN/STP broker, bank or liquidity provider, to make profit and recover the loss they might have to handle because of the profit that the trader will make (because the trader profit is their loss).

So, it is not an easy task to run and manage a brokerage. If they resist and keep on offering a good business, they will become popular and can make a lot of money. Learn more about market maker brokers: Market Maker Brokers: Is It Bad or Illegal to Be a Market Maker?

ECN/STP Brokers

The work is much harder and a lot more complicated for ECN/STP brokers, because they don’t make any money through the traders losses, which is a great source of income for the broker. They route the traders orders to the banks, also known as liquidity providers, and charge a small fee which is called commission. Commission is the only legal and legitimate source of income for an ECN/STP broker, which is around $10-20 for each standard lot.

Although the ECN/STP brokers income is much lower than the market maker brokers, and their work can be a lot more complicated technically, they have a safer business, because they will not be affected by profitable traders who make money constantly.

Some ECN/STP brokers use some other ways to make more money. For example, they add markups to the orders. Markups are hidden to the traders, and just slip the price when they want to get in and out of the markets. For example, when a broker adds a 2 pips markup to the entry prices, then the client will enter the market with a 2 pips higher price in case of long positions, or 2 pips lower price in case of short positions. This 2 pips will be the broker’s profit also: 6 Ways Forex Brokers Cheat You

ECN/STP brokers don’t have to have a dealing desk. They just need to keep the servers up and running and allow the clients to take positions without any problems. So they don’t have to pay for a dealing desk.

Nowadays, most ECN/STP brokers have a dealing desk or market maker system too, because they want to make money from the traders losses like what market maker brokers do. When they see over 95% of the traders lose, they see no point to route their orders to the liquidity providers. They place the profitable traders accounts on the ECN/STP, and losing traders accounts on the dealing desk system. They know that most of those who open a small account, are novice traders who don’t know how to trade and make money, and will wipe out their accounts finally.

There is nothing wrong with this as long as the broker doesn’t do anything to make the traders lose faster, easier and more. It is not the broker’s fault when a trader loses based on his/her own mistake. When they see that someone is making money, they can easily move his account to the ECN/STP system and leave him alone to make his profit. But they are not allowed to do something to make him lose. Also, having hidden fees like markups is a fraud.

An ECN/STP broker can make a reasonable amount of money if he can have a reasonable number of clients. Unlike the market maker brokers, they don’t have to have too many employees, so their expenses is much lower. Also, they can hire a third party company and pay them a flat monthly fee to take care of the platforms servers. This will save a lot more money for them. They can only focus on marketing and taking care of the clients deposit and withdrawal requests.

Conclusion

Although it is not clear how much money each Forex broker makes every year, it looks like a profitable business for those who know how to start and promote it, and those have enough money to survive and promote the company as long as they have not become able to cover their expenses yet.

In spite of this, it looks like a too challenging business. Most people who know about trading, prefer to be a good trader and make a reasonable amount of profit every year, rather than to be a Forex broker who has to deal with too many problems every day.

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51 thoughts on “How Much Money Forex Brokers Make
  1. marek herde says:

    I definitely stay to be a retail trader 🙂 No hassle involved!

  2. Shalewa A says:

    Hmmm, quite interesting to know how it works behind the scenes 🙂

  3. Jordi Pararols says:

    Dear Chris,

    thank you for another good and informative article!

    So, it is very difficult to find an ECN/STP broker who hasn’t a dealing desk or market maker system!

    If we find a good broker, what would you recommend to do to ensure that our account is opened in the ECN/STP system only?

    Thanks a lot.

    Best regards,

    • Jordi,

      You have to tell them that you are profitable and ask them to establish your account on the ECN/STP system, which is good for them too, because they don’t want to lose money because of your gains. If they know you are profitable, they will not take a risk.

  4. Vincent Wayne says:

    I think retail trading is one of the best thing invented.

  5. sebastian says:

    Thanks for the article.

  6. Ambrose Ugbenu says:

    Indeed Mentor Chris, you are an Encyclopedia of .
    I doff my hat.

  7. Jae Task says:

    In the UK, Limited companies are required to post their end of year accounts, so it would be possible to see the ins and outs of a brokers accounts. I don’t know if the same laws apply in the US though.

  8. Tulio Araujo says:

    I don’t know about other but as CM is listed on NYSE it must publish its balance.

    CM Adjusted Pro Forma EBITDA
    Q1 2014: $24.6 million – Net income – $5.2 million
    Q2 2014: $13.4 million – net loss of $1.5 million
    Q3 2014: $28.4 million – Net income – $8.4 million
    Q4 2014: $40.8 million – Net income -$16.1 million

    It’s also interesting that they talk about the swiss tsunami

    “… due to unprecedented volatility in EUR/CHF pair after the Swiss National Bank announcement this morning, clients experienced significant losses, generated negative equity balances owed to CM of approximately $225 million.

    As a result of these debit balances, the company may be in breach of some regulatory capital requirements.”

    And also about one of your articles about forgiving:

    “CM to Forgive Majority of Clients Who Incurred Negative Balances
    NEW YORK, Jan. 28, 2015 (GLOBE NEWSWIRE) — CM Inc. (NYSE:CM), announced today its decision to forgive approximately 90% of its clients who incurred negative balances in certain jurisdictions, on January 15, 2015 as a result of the Swiss National Bank announcement on that date. CM will notify the applicable clients and adjust applicable client account statements in the next 24-48 hours.”

    If anyone wants to read more : http://ir.cm.com/releasedetail.cfm?releaseid=893269

    • ssy says:

      CM had no choice but to write off the losses because most of the losses were incurred by traders in foreign countries making huge bets and there was no way for CM to collect. CM stocks took a big hit as a result and they are still paying back the $225M loan that enabled them to survive the crisis.

  9. Jonathan Johansson says:

    True ECN/STP broker is really hard to find . :/

  10. Dany M says:

    Hello Chris, I am always amazed how much new info about anything related to the market or traders life you bring to us. I know you will keep on doing that. I am happy to be part of this group.

    Thank you

  11. Mandla Ndlovu says:

    truth comes out

  12. Steve Edwards says:

    My understanding of the difference in types of brokers is becoming much clearer …. Thank you Chris…!!

  13. rajesh mahendar says:

    Hi chris,

    Thank you for the knowledge imparted to us.

  14. Himanshu Sahai says:

    Hi Chris Sir

    What are the aspects and precautions we should care about when opening an account with foreign broker? With due respect,may you write an article about this? This helps a lot for those who has not domicile brokers in their country.

    • Himanshu,

      Most traders have to open an account with foreign brokers. There is no any special precaution for this. You just need to know how to choose a good ECN/STP broker.

  15. Jan du Plessis says:

    Always obliging. Thanks Chris.

  16. fasih ahmad says:

    hi chriss,
    here are the two arrows which could be trade setups .. i know they are not 100 score, but had u taken those trades/?? if no, can u please tell me why..

    the first setup , in my opinion, was strong as there were candles before the setup having large upper shadows which could mean that bears were trying to take over..
    i want your analysis on that..
    thanks a lot..

  17. moaied suhail says:

    hi,
    me too i prefer to stay retail trader 🙂

    thank you Chris very good to know.

  18. Youness Y says:

    Roger that Chris.

    Cheers.

  19. Yudi Kastawan says:

    Hi Cris..

    Im realy to know your broker, so im not confuse to choose another one

    Great job, my friend..

  20. kadri adewale says:

    Hi Chris,thanks for this valuable information.I’ll prefer being a retail trader.

  21. STEPHEN MUHINJA says:

    Thanks you for this info i thought i would open an brokerage firm to trade alone for myself if i became profitable and am able to pocket like $100,000 per month with an account of $1,000,000. But again what will happen to my cash if financial crisis happen?

  22. Sefako Isaac says:

    Great article Chris thanks.

  23. Ashok Pandey says:

    Very informative article, Thanks Chris!,Like many others, I would also prefer to remain a retail trader.

  24. Martin S says:

    Hi Chris,
    Out of curiosity. The people working in a dealing desk of a market maker must see so many different, even if mostly losing, trading styles. These people will be like in an aquarium and can study the fishes how the are successful (or not).
    So are they not in a prime position to become good traders on their own and why should they then continue working for the mm?
    Or: if I would be free, I should get a job at an mm, perfect place to learn?

    Thanks!

  25. fawaz bamakrait says:

    if i have a chance to trade without them i’ll do .

  26. Nicolaas Kolz says:

    Very interesting to know.
    Thank you Chris

  27. Di White says:

    Hello Chris, i am still on demo account. I am profitable in general.loosing from time to time. When i want to open the real account, do you think that the broker will choose the ecn\stp side? My account will be small. In resume: it matters if we are profitable or not on the demo account?
    Thank you

  28. Ted Mahachi says:

    Now I understand why you won’t go into this business. Thank you Chris!

  29. Yusuf Aditiyo says:

    Thanks Chris, Good Article.
    Now I know that traders & brokers have the same risk in this business.

  30. chia hao says:

    i think they earn interest rate through segregated bank account too.

  31. neo __ says:

    Thanks chris. Just wondering, could you share what is the broker you use for the charts?

  32. Mandy Wong says:

    hi chris please see my post https://www.luckscout.com/forums/topic/hotspot-minimum-deposit-100k/
    are you using ecn or stp broker?

  33. Iva Hampl says:

    Hi Chris
    I would like know who charge interest from margin? MM or ECN?

    I don’t get it how is count commission % from 1M.
    if we have some article about it can you send me a link I can’t find it

    MQ is just software developer, where data coming from?

    Sorry for so many questions
    Thank you iva

    • Iva,

      1. Both of them can do it if they want.

      2. There is no special rule for commission. Brokers charge commission on their own.

      3. It seems they get it from CM.

  34. Iva Hampl says:

    Thank you Chris

  35. Pierluigi Ciccotti says:

    Hi Chris,

    what should the margin requirements be for a true ECN/STP, VARIABLE, depending on which currency pair you are trading, or FIXED, the same amount applied regardless of the currency pair traded. (ie 1:100 leverage = 1% margin)?

    Thanks a lot for sharing your knowledge, good karma!