Forex brokerage need volume to survive

The key to the success of every forex brokerage firm offering online forex trading is to generate sufficient volume generated through the activity of its clients. It does not matter whether the forex brokerage is an STP broker or market maker taking the risk. Without volume, the forex brokerage is doomed to fail.

This may explain why forex brokerages are the most aggressive advertisers through the Internet, in the traditional press (such as newspapers, magazines) or by cold-calling clients offering very tight spreads, swap free accounts ideal for Islamic traders who by faith are prohibited from receiving or being charged interest as well as those who offer free trading tips.

Once a forex brokerage manages to attract a client, then this becomes a revenue source for both the brokerage acting as pure STP broker or market maker. In the case of the STP broker, who does not take a counter position against the client, the objective is to make a tiny markup on top of the spread received from a counterparty and thus make the desired profit. In the case of the market maker, and specifically those who never cover positions, the objective is for the client to lose and eventually be wiped off, so that the specific brokerage makes all the money.

This may also explain why many market makers agree to accept clients with deposits of as little as $100 whereas a pure STP broker will only take clients with minimum balances of $5000 and above.

In fact many market makers also agree for commission free client deposits through credit cards or plastic money transfers and absorb the 2-3% card handling and processing fees, since for them, the objective remains to attract clients at all cost on the belief that eventually all retail clients lose their money.

For those who opt to become an STP broker, another effective way to attract clients and generate volume is to offer forex managed accounts whereby they manage the accounts on behalf of clients and take the responsibility to generate buy and sell orders. Although there is no guarantee with respect to performance, but it is generally accepted rule that any broker, especially the regulated ones are most likely to work properly and take all measures to generate genuine profits for their clients and at the end be rewarded with a certain percentage from the positive performance.