There is no secret about how forex providers make their profits.

Most forex services companies, including ourselves at Forex Group and the banks make their profit through a combination of:

  1. Selling currency to you for more than they paid for it;
  2. Commissions and fees;
  3. Wholesale market trading;
  4. Cross-selling – though this is perhaps mostly applicable to the banks.

Let’s look briefly at each of these in turn.

Currency exchange rates (selling currency to you)

Currency exchange rates tell you how much you’re going to be able to buy or sell your currency for. If you have dollars and are buying say Euros, then your forex provider is selling Euros to you.

If you’re trying to convert Euros into dollars, they will be selling dollars to you or buying euros from you if you prefer. It’s really just terminology.

The bottom line is the same - they’ll be selling you something at a price that’s higher than they paid for it.

The margins here for a forex specialist, as opposed to a bank, are typically miniscule per currency unit and very modest when looked at in terms of a total amount converted. They make their profits here based upon volumes over a year.

 That’s why building and maintaining long-standing client relationships through exemplary service is (or should be) important to forex providers. At the risk of generalising, banks may tend to look at each transaction individually and look to obtain a higher rate of return on it. Commissions Tariffs and practices here may vary widely. For example, you might be charged for moving currency from one bank to another overseas.

Ancillary services might also be provided here – at cost. Wholesale market trading Forex specialists might hold their own balances of various currencies and trade those on the wholesale markets. This generates profits. Cross-selling In the case of the banks, they may have some forex-related profits that arise consequentially through cross-selling. In that category would come things such as persuading a forex client that a foreign currency account would be beneficial to them and then that account would, in itself, generate more profits for the bank.

Related Resources:

5 Keys to Get Highly Competitive FX rates.

How Can You take Advantage of Overnight Volatility?

Should you Trust Banks for Foreign Currency Payments?

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