Is it profitable for brokers to actually train their traders?
Nowadays there are many brokerage firms which train new traders, often for free. They offer really valuable knowledge, in fact they bring a trader to the Forex market without any investments. The question is why do the brokerage firms do it, what profit they receive? If it suddenly turns out that a brokerage firm receives nothing from the training, then why does it need anything at all, because nothing is just done on the Internet? Let's shed some light on the dark side of brokerage firms and get to the bottom of this issue.
How do online brokerages work?
To get to the bottom of the problem, we need to define the essence of a brokerage firm as such. A broker is a kind of intermediary between a trader and some person at the exchange. The trader needs to buy a certain asset, e.g. a security or currency at a necessary rate and in a limited volume, there can be a person at the exchange who wants to sell. The only thing left to do is to negotiate and conclude the transaction, with the stockbroker being the intermediary. The entire process described above is almost entirely automatic, but the broker's function does not change.
How does a brokerage firm earn money? It receives a certain percentage of transactions made by the traders, regardless of whether these transactions prove to be profitable or not. It turns out that the more trades opened by clients, the richer the broker will be, but to reach it the newcomers in the exchange trading world have to be explained the basics of successful trading. Along with the commission charges many brokerage firms put additional conditions to traders, for example, if after the training the start-up capital is provided for trading, the trader will have to give a part of his earnings, often up to fifty per cent, to the broker. Free training and start-up capital allow anyone to discover forex without any investments, which ideally solves the problem of unemployment in general. It is a different matter, that not all people have a predisposition to such earnings, which require patience and above average intelligence.
Is it profitable for brokers to really train their traders?
So what does the brokerage firm get after training the novice traders? Firstly, the capital that these traders will invest. The capital can be invested initially just for training if it is paid or directly to the trading account. Secondly, the traders will start to make trades on which the broker will receive a commission. If these transactions are losing the broker will not lose anything, if they are profitable the part of profit will go to the broker's pocket.
The considered variants of receiving profit are not the only ones, there are many others. A trader, who is trained to earn on Forex, can invite other people, the same as he is, i.e. start to build an affiliate network. Almost every brokerage firm has affiliate programs, which will give the trader an opportunity to earn extra money. The network is profitable for the brokers for the reasons we described earlier: the more people, the higher the potential income.
Training traders and establishing a well-developed brokerage firm is also beneficial for the future sale of the business. Such transactions are quite rare because traders prefer to receive passive rather than lump-sum income from their activities, but they can still take place. Selling a brokerage server with an existing network of real traders is a sure way to make a lot of money in one go to get away from the business and gain full financial independence.
Analyzing all the above, you can conclude that the training of new traders for a stockbroker is quite a profitable occupation which opens up many prospects at once. Brokerage firms today are not few in number, in order to outrun their competitors they have to lure clients to their side all the time, and to do this they have to attract them with new profitable opportunities. The broker activity itself can be considered quite profitable, because the risks are minimal, the broker does not risk his own money. However, it should be remembered that setting up such a business is a complex process that requires knowledge of all trading principles and competitors should also not be forgotten.