Forex brokers often give a deposit bonus (also referred to as a welcome bonus) when a trader opens a new account. Deposit bonuses are usually specified as a percentage of the initial deposit amount.

Some brokers offer as much as a 100% deposit bonus. This means that they will match the initial amount deposited by the trader and add that much money to his or her account.

Restrictions

The welcome bonus is not part of your regular account balance. Here are common limitations:

• The bonus cannot be withdrawn in any way, even together with your deposited balance.
• Profits made using the bonus cannot be withdrawn.
• Losses incurred on your account cannot be covered by the bonus.

Benefits

The bonus can be used in the following ways:

• Virtual playing money to test the platform and get familiar with all the features. Similar to a demo account.
• When you make many trades with real money (that you deposited) and the broker earns commission profits equivalent to the bonus amount – some of the restrictions on the bonus money may be lifted. For example, some brokers allow you to “withdraw profits earned on the bonus money”.
• With some brokers, the bonus can act as a rebate for part of the commissions that the trader has generated using real money trades.
• Some brokers allow more leverage based on the total account balance that includes the bonus. However, losses cannot be covered by the bonus.

Summary

No broker is going to give you free money. A forex bonus is just as good as a Demo Account.

Optional Bonus

Some brokers will let you choose whether you want a bonus or not. Sometimes you can even choose the percentage of the bonus (from you deposit) to be added to your account. It is your choice how much virtual playing money you want to play with inside your account.

Scam

Low-class brokers often use bonuses to bait unsuspecting beginners. These brokers usually make false claims (justified by fine-print terms and conditions for legal purposes) to give traders the idea of “free money” or “risk-free trading”. Some brokers go as far as offering traders bonuses without depositing any money at all.

While the best high-quality brokers compete on better trade execution and lower spreads, the ‘Free Deposit Bonus‘ brokers compete on the amount of virtual money they promise to give.

Bonus from a Reputable Broker

Forex brokerage is a very competitive industry. Even reputable brokers struggle to attract new customers. You will sometimes see trusted brokers (like XM Forex) putting a big emphasis on their ‘Deposit Bonus’ promotional offer. This does not make XM Forex a better or a worse broker.

Traders looking for a ‘Forex Bonus‘ is a big niche market within the Forex industry, and you cannot blame marketers for targeting those clueless customers.

The result is usually a disappointment by the trader that he or she will not receive free money. No one gets scammed or hurt in any other way.

In 2017, to limit such false competition, many regulatory bodies restrict brokers from promoting bonuses to their clients.

Verdict

Do not pick a broker by its welcome bonus. Instead, look at other important factors we mentioned in our main forex brokers guide.