in ,

How Forex Brokers Make Money: Additional Fees and the Regulations

a man wearing a suit and tie

Traders and speculators buy and sell different currencies on the foreign exchange market based on whether they believe the value of the currency will increase or decrease. Around $5 trillion is transacted every day in the high-risk foreign exchange market or forex. To execute trades, traders must use a middleman, such as a forex broker. Forex brokers earn money on commissions and fees, some of which are hidden, regardless of the profits or losses incurred by specific traders. Choosing the proper broker can be aided by being aware of how forex brokers generate revenue.

How do Forex Brokers work, and what is their role in the Forex market?

A foreign exchange broker accepts and carries out orders to buy or sell currencies. As you may know, their primary responsibility is to provide access to traders, allowing them to buy or sell. Before paying the forex broker you choose, you should identify the services for which you want to apply for a forex broker. For example, some brokers, such as IC markets, besides providing educational resources and material, also offer market trends and potential trading opportunities. In order to research all those services, you can look through IC markets review here and be informed about your trading decisions. 

Typically, forex brokers work on the over-the-counter, or OTC, market. The forex broker will bill a commission per trade or a spread in exchange for carrying out buy or sell orders. Forex brokers generate revenue in this manner. The discrepancy between the asking price and the bid price for the trade is known as the spread. The price you will get for selling a currency is the bid price, and the price you must pay to buy a coin is the asking price. The broker's spread is the discrepancy between the ask and bid prices. A spread and a commission could both be assessed by a broker on a trade. It's possible for brokers to advertise commission-free trades. The spread of trades is undoubtedly widened by these brokers to generate commission.

a person sitting at a table in front of a laptop

What fees do they make? 

As was mentioned, the way forex brokers get paid might seem complicated and different. However, officially three types of fees that they get; Commissions, Swap Fees, and Inactivity Fees


In the past, most traders and investors had to pay commissions to their brokers in order to place transactions and keep track of their accounts. Today's fees on the majority of stock and ETF trades have fallen to zero at multiple platforms as a result of the development of Internet-based trading, online account management, and intense rivalry among brokerage firms. For options trading, several brokers impose a per-contract cost in addition to a predetermined commission. It might cost $5.95 plus $1.00 per contract, making the total amount for a deal involving 10 lots $5.95 + $10 = $15.95. Depending on your broker and the volume of trading you perform with them, the specific commission structure will change. For instance, E•TRADE charges $0.65 per contract, but for accounts with more than 30 trades, the fee is lowered to $0.50 per contract.

Swap Fees

If you want to keep a trade open overnight, there are swap fees that must be paid at the conclusion of each trading day. To construct a solid market strategy, keep an eye on the table below, as these fees can differ from asset to asset. Please be aware that while you will not be charged any fees on Saturday or Sunday, you will meet on Wednesdays. The idea of a swap charge, often known as a rollover, enables traders to earn or pay interest on overnight Forex holdings. The difference in overnight interbank interest rates between the two currencies that make up the exchanged currency pair determines the swap rate.

Inactivity Fees

When there is no activity on a customer's account, banks and other financial institutions charge an inactivity fee as a service cost. When some accounts become inactive or when investors fail to place any buy or sell orders in their brokerage accounts for a predetermined period of time, inactivity fees are assessed. These costs are acceptable and can be avoided by either canceling the account completely or making at least one transaction annually. Customers of banks and other financial institutions pay a range of fees that go toward the institutions' earnings. Monthly maintenance fees, overdraft fees, foreign transaction fees, and inactivity fees are some of these charges. When consumers quit using their accounts for any reason, the latter are charged.

What kind of regulations must brokers comply with?

The Financial Industry Regulatory Authority (FINRA), the organization that oversees broker-dealers, is where brokers register. Brokers are accountable to a code of behavior in serving their clients based on the "suitability rule," which stipulates that there must be solid reasons to suggest a particular product or investment. The procedures a broker must take to identify their client and their savings goals in order to establish reasonable reasons for the recommendation are covered in the second section of the rule, also known as "know your customer" or KYC. The broker is required to use reasonable efforts to learn about the client's financial situation, tax situation, investment goals, and other facts needed to make a recommendation. Thus, there're three kinds of regulations, including Capital requirements, Transparency, and Client funds protection, that brokers must comply with. 

a man sitting at a desk in front of a laptop computer

Capital Requirments

The National Futures Association (NFA) is a free self-regulatory body that oversees the futures and derivatives markets in the United States. The NFA's objective is to protect investors, preserve the integrity of the derivatives markets, and make sure that members adhere to their regulatory responsibilities. The NFA has been designated by the Commodities Futures Trading Commission (CFTC) as a recognized futures association. The investing public may rest easy knowing that all companies, intermediaries, and associates who do business with them on U.S. futures exchanges must uphold the same high standards of professional conduct thanks to NFA membership. The NFA receives its funding from membership fees paid by the businesses involved in the sector.


One of the biggest and most liquid financial marketplaces is the FX market. It is $6.6 trillion in daily trading volume. Due to the numerous trading options it provides, it has recently been more readily available to potential traders. By offering traders platforms to trade on, specialized trading courses, educational resources, trading advice, and much more, broker organizations play a crucial role in this type of market. Yet, security, trust, and dependability are crucial but not always upheld in a society where money is exchanged. The preference of one broker over another mostly depends on how secure and risk- and fraud-free the invested capital is. There are still other things to think about, such as the key distinctions between regulated and unregulated brokers, the reasons why unregulated brokers exist, the implications for lead generation, verification, and conduct, the implications for transactions, the implications for supplied offerings, and the ways in which our brand guarantees a better trading experience by upholding a core value of transparency, which is crucial when using a broker.

Client funds protection

A protected fund is a kind of mutual fund that guarantees to return an investor at least a portion of their initial investment. If the investor keeps the original investment until the end of the contractual term, they will receive their protected initial investment back along with some financial gain. Due to the fund's ability to invest in the forex market, the concept behind this sort of fund is that you will be exposed to market returns while still having the security of the guaranteed capital.