How forex brokers make money

Knowing how a broker earns its money tells you what you are really paying and where its interests may differ from yours.

The main revenue sources

Spreads. The broker adds a mark-up to the price it gets from liquidity providers, or quotes its own prices.

Commissions. Raw-spread accounts charge a fee per lot instead of a wider spread.

Swaps. Overnight financing usually includes a mark-up over interbank rates.

Fees. Currency conversion, inactivity and some withdrawal fees.

Client losses. When a broker is the counterparty to client trades and does not hedge them, client losses become broker revenue.

A-book and B-book

Brokers that pass trades to the market (often called A-book) earn mainly from spreads and commissions. Brokers that keep trades in-house (B-book) also earn when clients lose. Many brokers use both. Neither is illegal, but in-house dealing creates a conflict of interest that regulated brokers must manage and disclose. See ECN vs market maker brokers.