What a forex rebate is, and how it works

A trading rebate — cashback — is a mechanism that returns part of what you paid the broker. It
sounds like a promotion, but it works quite differently, and understanding how tells you what it is
really worth.

1. Where the money comes from

Every trade you close generates a cost to you and revenue for the broker: spread or commission.
The broker pays part of that to whoever introduced you — the
IB commission.

Open an account by yourself and that commission still arises, but nobody collects it. Open through
an introducer and it goes to them. A rebate service simply returns most of it to the person
doing the trading.

2. The most important point: it is not profit

A rebate is calculated on traded volume, not on results. Which means:

• Winning and losing trades earn the same rebate.
• It does not guarantee you a profit.
• It does not offset a loss.
• It only reduces your cost.

Which is also why trading more than your plan calls for in order to earn more rebate is a serious
mistake: the extra risk almost always outweighs the extra rebate.

3. Why it does not worsen your trading conditions

A rebate sits in the IB commission layer, entirely separate from the price you
fill at. Your spread, leverage and execution speed are
identical to every other account at the same broker. Nobody inserts a charge in between.

4. What it comes to in practice

Say you trade 20 lots a month at a rebate of $8 a lot:

• Per month: $160
• Per year: $1,920

For a steady trader, that is the difference between a break-even year and a losing one.

5. What to check before signing up

• The rate for each account type
  — it usually differs within one broker.
• How and when it is paid — daily or weekly, into the trading account or a
  separate wallet.
• Whether there is a minimum volume.
• Whether an existing account can be transferred — every broker has its own
  policy.

6. Comparing brokers properly

Do not compare rebate rates against each other in isolation. The number to compare is
net cost:

Net cost = spread + commission − rebate

A broker paying $18 a lot on a wide spread can be dearer than one paying $8 on a tight one. Only
the arithmetic, run on the lots you actually trade, gives the right answer.

This article is for information only and is not investment advice. Conditions and fee levels are published by the brokers and can change at any time — check with the broker you actually use. Leveraged forex and CFD trading carries a high level of risk and can cost you your entire deposit.