How do Forex brokers like forex.com, fxcm.com, etc. make their profits?
I have literally spoken to a Forex.com representative and it was explained to me:A Pip, is a fraction of a cent (It is 1/100 of a cent). Most Forex trading is based on very minor changes in the exchange rate - in other words, a difference in Pips. The exchange rate changes every second.The Forex company makes their money by collecting the difference between how much you buy it for and how much you sell it back for.For example, if the exchange rate for Euro/USDollar was 1/1.34571, that would mean that a Euro would cost $1.34571. However they might sell it to you for a few Pips higher at a price like $1.34591. They collect that difference by charging you slightly more than it really cost.It works the same way backwards. When you sell it back to them (i.e. they buy it from you), you get slightly less than the price it's worth. They may only give you $1.34551 per Euro.In both scenarios, they collect 2 pips ($0.0002). But you have too consider you're trading huge amounts of the currency, which amounts to a lot more.It's not a scam. It's actually brilliant on their part because the difference is hardly noticeable to the investor, but it can add up for them. And they don't have to charge obnoxious commission. And it practically pays for itself because you can very easily make up the difference.But the specific answer to your question is: Not really. They simply gather the money in the spread. Although, since they do offer fixed AND variable pip rates, they have the opportunity to widen the margin for the variable rate and collect more if needed. Other than that, the owners generate wealth simply by having users.
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