Do Forex Brokers Lose Money? Here's the Answer
As a new or experienced trader looking for a broker, you really should check out our best forex brokers in the world listing to see what is on offer.
While many of these well-respected brokers make money and have huge trader bases, you may also wonder, do forex brokers lose money?
It is a fair question and one we will look at here also including some of the financial figures from top publicly listed brokers in the industry so you can see for yourself.
Let’s get started.
Table of contents
Do Forex Brokers Lose Money?
Forex brokers do lose money at different times. In fact, they may lose around 60% of the total revenue they take in. This can come from trades as usually when a trader loses, a broker does not make money depending on the situation, and vice versa.
In reality though, much of this is simply the operational costs of running huge companies as many of the top forex brokers are.
What expenses do brokers have?
While it would be impossible to identify every single cost, there are generally several key common expenses.
Employees in each department can account for a lot. To name just a few, this can be software engineers, account managers, customer support, marketing experts, and many others. Operational costs then account for a large percentage with costs like offices, taxes, deals with liquidity providers or other financial companies, repairs, and so on.
Then you have marketing costs which can be huge for forex brokers, as well as continuing to invest in future developments for the broker and company to stay at the top of the industry.
Do forex traders lose money?
Forex trading is a risky activity. For that reason, forex traders do lose money and brokers are open about it. According to the data, each broker has a different percentage of forex traders losing money on their platform. The average is between 65%-75% of forex traders that will lose money.
Even those who do succeed will lose money from time to time. Every trade is not a winner, though these more experienced traders can understand this and have developed ways to manage risk and also increased their knowledge to profit more often than lose.
How much money do forex brokers make?
With most brokers, this is hard to precisely identify as they do not have to disclose. For the few that are publicly listed though, they do have to provide this information. With that in mind, you will find below a list of publicly available figures for Plus500, CMC Markets, and Interactive Brokers for 2020.
| Plus500 | CMC Markets | Interactive Brokers | |
|---|---|---|---|
| Currency | USD | GBP | USD |
| Total Revenue | 972 million | 298 million | 1.925 billion |
| Net Profit | 500 million | 86 million | 256 million |
| Free Cash Flow | 528 million | 60 million | 8 billion |
| Financial Data | PLUS.L | CMCX.L | IBKR |
| Visit Plus500 (72% of retail CFD accounts lose money) | Visit CMC Markets (80% of retail CFD accounts lose money) | Visit Interactive Brokers (74-89% of retail CFD accounts lose money) |
FAQs
Do Forex brokers make money when you lose?
There are many kinds of forex brokers. Brokers such as Market Makers have an internal market where the broker is the counterpart that loses money when the trader wins. Non-dealing desk brokers (such as ECN brokers) do not make money when the trader loses and vice-versa.
Do Forex brokers trade against you?
This depends on their own operating model. Some may trade against you, others may not. If you are dealing with a well-regulated broker then this is not really a big issue for many.
Do most forex traders lose money?
According to the brokers’ data, 65-75% of forex traders lose money when trading Forex and CFDs.
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