In the competitive world of online brokerage, new account promotions are fairly commonplace. The brokerage industry is rather crowded, and introductory promotional offers for new accounts are an easy way for brokers to attract new clients. As a prospective customer comparing firms, this is great news for you! New account promotions can be a great way to get a head start and cut costs during those critical first few months of trading.
| Find the best broker for your investments: Broker Promotions for New Accounts |
However, the attractiveness of an account promotion should never be the sole reason that you choose to place your money with a particular brokerage firm. Your choice of broker is one of the most important trading decisions you’ll ever make, and it is best to focus on long term benefits such as security and quality of customer service, rather than being lured by a great sounding promotional offer only to have your account balance suffer over the long term.
Our advice that would be that you make a careful choice of broker using the tools provided below, and only then check to see whether any kind of promotion or discount is currently being offered by your chosen broker. Most likely there will be one, and although it mightn’t be the best offer, you’ve chosen the best broker, which is far more important (plus, you’ve got a bit of a discount into the bargain)!
If your broker doesn’t currently have any kind of new account promotion, then this is probably because their market position is sufficiently strong that they can confidently attract new customers without special offers. In other words, you’ve chosen a good firm, and that’s much more important than any kind of promotional bonus.
Brokerage New Account Promotions Types
Promotional offers take various forms, and they come attached with various terms and conditions. Let’s take a look at the different types of offers that are common for new accounts . . .
Commission Rebates
Called a ‘rebate’ by stock and futures brokers, this type of promotion is often simply referred to as a ‘cashback’ offer by other firms. What is being offered is the return of part or all of the commission or fee that you pay the broker. Many dealing desk forex brokers only charge the spread rather than a commission, so their rebate is based on the spread.
If the rebate is equal to the entire brokerage fee, then this type of offer is sometimes simply phrased as “Trade for Free” in promotional literature, as that’s basically what you’ll be doing! The time for which your fees will be rebated will vary; promotions might apply for anything from 1 to 6 months.
Welcome Bonus
A welcome bonus, as its name suggests, is a bonus that is offered to welcome new clients. It might be a fixed sum, it might be based on your transacted trading volumes, or it might be a multiple of your first deposit. Because brokers don’t want people opening accounts just to claim a bonus with no intention of maintaining the account, these offers tend to have strict conditions attached.
Loyalty Bonus
This type of promotion is open to existing account holders and often also new accounts. It normally has some condition that must be met, typically a deposit from which the bonus amount is derived. So in much the same way as an existing customer can demonstrate their loyalty by depositing more funds with a firm, a new customer can do much the same.
Promotions – Terms & Conditions
While brokerage new account promotions are clearly designed to be attractive in the descriptions you see in advertising, it’s important that you familiarize yourself with the actual terms and conditions for the promotion, as these are what will determine the benefit that you actually receive.
Let’s run through some of the different clauses that are common to these offers . . .
Transacted Volume
The broker may specify that you have to do a certain amount of trading before you qualify for the bonus. Consider this in light of your intended strategy; you shouldn’t be trading sub-optimal low probability positions just in order to try and earn a bonus. Also keep in mind that the stated volume (e.g. “Round trips transacted with a value of at least $100,000) assumes that you’re using leverage – don’t think “how will I ever trade that much with my tiny account?” – with leverage of just 100:1 you may comfortably turn over positions with this face value within a few weeks of opening your account.
Another concept that is sometimes employed is that of “volume tiers”. This simply means that the amount of volume you transact is classed within a band. So, you might get one rebate amount if you trade 10-100 contracts, and a higher amount if you trade 100-500 contracts. There are typically four or five tiers, designed to provide greater benefit to high volume traders.
Number of Trades
This is the same type of restriction as the one we have just discussed, though made significantly simpler. Rather than requiring that you enter into transactions with a certain monetary value, the broker simply stipulates that you must complete a certain number of trades (also called ’round trips’ or ’round turns’). When reviewing this type of promotion, keep in mind that there will be a minimum lot size that you are able to trade, and this will determine the minimum monetary value you must transact in order to qualify.
Account Maintenance
You may be required to keep your account open and funded for a specified period of time before you qualify for a promotional offer. This is yet another reason why you should be certain that you are opening an account with a broker that you want to continue to trade with.
Withdrawal Restrictions
Often, the terms will prevent the withdrawal of the bonus sum (though not your own deposited funds, obviously) so that it may only be used for trading purposes. Or, this might be combined with other conditions so that the bonus may be withdrawn, but only after a certain number of trades are completed or the account has been maintained for a specified duration.