Rebate – what is it and how useful it might be for a trader
A lot of traders probably came across such a notion as «rebate». This notion is quite often used by brokerage offices. So what does it mean and why do brokerage offices pay a big attention to work with rebate?
A Rrebate is an amount paid by way of reduction, return, or refund on what was paid or contributed. One of the main tasks of brokerage offices is the client capture and rebate undoubtedly contributes to the solution of this task.
For instance, the brokerage office pays its client 10 dollars for every lot from the total amount of transactions. In this respect one might have a question if the income of the brokerage office is based only on spread, then why should it share its profit with a client? If we study this question more carefully, we may notice a veiled psychological trick used by the brokerage office. At the first glance everything looks wonderful. However, the subtle aspect implies that some traders may have the impression of having the opportunity to earn with a rebate. They try to make as many transactions as possible, overrating the volume of their open positions, thus contributing to the growth of income of the brokerage office but excessively increasing the risk of personal trading. As a result if the trader falls for this trick, the brokerage office will get its profit from every client’s closed transaction anyway. But the trader will have nothing to withdraw as this trading will be unprofitable for him/her and the rebate of the part of spread will definitely not compensate the losses.
The situation differs if the partial rebate of spread is offered by the partner of the brokerage office. In this case a trader does not have a direct replenishment until the end of a month’s time after which the partner of the brokerage office will transfer funds to the account. In such a circumstance the trader has the right to receive spare money which can be managed in the client’s discretion. Let us assume that a trader made some transactions within a month the total volume of which equals 20 lots. According to the affiliate program the brokerage office deposits the partner at least 50% from spread which in money terms is $300. Then the partner shares this money with the trader sending a half from the amount which was transferred by the brokerage office. In this situation the trader gets $150 for work and the partner of the brokerage office has its $150. It means that the trader becomes a partner of the brokerage office and gets income while making transactions without being bothered by various accruals from every transaction.