How forex brokers make money (and where the conflicts are)

Forex brokers make money in three main ways: the spread between the buy and sell price, a commission per trade on some accounts, and overnight financing (swap) on positions held past the daily rollover. On top of that come fees such as currency conversion and inactivity. Many retail brokers also act as the counterparty to some client trades, which means they can earn when those clients lose. That last point is the source of most of the conflicts of interest in the industry.

None of this is secret, and none of it is necessarily bad. A broker is a business and has to be paid. The useful thing is to know exactly how, because the way a broker earns tells you what you are paying, where the conflicts sit and which questions to ask.

Revenue source 1: the spread

Every forex quote has two prices. The bid is where you can sell; the ask is where you can buy. The difference is the spread, and you pay it every time you open and close a position. If you are new to quotes, start with reading a forex quote.

A broker's spread has two parts:

• the raw spread it receives from its liquidity providers (banks and non-bank market makers), and
• a markup it adds on top.

On a "standard" or "commission-free" account, the markup is how the broker gets paid. If the underlying EUR/USD spread is 0.2 pips and the broker shows you 1.2 pips, it keeps roughly 1 pip per round turn on each lot you trade, worth about $10 on a standard lot. You never see the 0.2; you only see the 1.2.

On a "raw" or "ECN-style" account, the spread you see is close to the underlying market spread, and the broker charges a commission instead. Either way, you pay. The spreads and commissions guide shows how to compare the two on one number.

Revenue source 2: commission

Raw-spread accounts typically charge a fixed commission per lot traded, often quoted per side (opening or closing) or per round turn (both). Commissions around $6 to $7 per standard lot round turn are common on major pairs, though it varies by broker, account currency and region.

Commission is transparent: it appears as a separate line in your trade history. It is also predictable, which makes it easy to build into a backtest. The broker's income from commission depends purely on how much you trade, not on whether you win.

Revenue source 3: swaps (overnight financing)

When you hold a leveraged forex or CFD position past the daily rollover, usually 5pm New York time, you pay or receive a financing adjustment called a swap. It is based on the interest rate difference between the two currencies plus the broker's own markup. Our guide to swap and overnight financing explains the mechanics, including the triple charge most brokers apply on Wednesday nights to cover the weekend.

The broker's margin is the gap between the swap it charges or pays you and the financing cost it actually faces. Because the markup applies in both directions, you can end up paying a small swap even on the side of a trade that "should" earn interest. On index and commodity CFDs, financing is usually a benchmark rate plus or minus a fixed percentage set by the broker.

For short-term traders swaps are minor. For anyone who holds positions for weeks, they can become the largest single cost.

Revenue source 4: fees around the edges

Brokers also earn from charges that have nothing to do with trading itself. The most common are:

• Currency conversion: if your account is in euros and you trade an instrument priced in dollars, profits and losses are converted, usually at a rate that includes a markup. The same applies when you deposit in one currency to an account in another.
• Inactivity fees: a monthly charge after a period with no trading, commonly several months.
• Withdrawal fees: some brokers charge per withdrawal or for certain payment methods.
• Platform or data fees: for premium platforms, market data or add-ons.
• Premiums for protected stops: where a broker offers a stop loss it promises to fill at your exact price regardless of gaps (often called a GSLO), it charges extra, usually as a fee paid only if the stop is triggered.

Individually these are small. Over a year they can add up, and they are the costs traders most often overlook. We cover them in detail in hidden broker fees.

Worked example: what one trader pays in a year

This is an illustrative example with invented but realistic numbers. A trader with a 5,000 euro account trades EUR/USD and GBP/USD on a raw-spread account:

• 20 round-turn trades a month, average size 0.5 lots.
• Average raw spread: 0.2 pips. Commission: $7 per lot round turn.
• About a third of positions are held overnight for one night, at an average swap cost of $3 per lot per night.
• The account is in euros, and the broker charges a 0.5% conversion markup on dollar-denominated profit and loss.

Monthly costs:

1. Spread: 20 trades × 0.5 lots × 0.2 pips × $10 per pip per lot = $20
2. Commission: 20 × 0.5 × $7 = $70
3. Swaps: about 7 overnight positions × 0.5 lots × $3 = $10.50
4. Conversion: small, depending on how much P&L is converted. If $2,000 of combined gains and losses passes through conversion in a month, 0.5% is $10.

That is roughly $110 a month, or about $1,300 a year, on a 5,000 euro account: around a quarter of the balance before a single trade has been won or lost. The same trading on a standard account with a 1.2-pip spread and no commission would cost 20 × 0.5 × 1.2 × $10 = $120 a month in spread alone, before swaps and conversion.

The point is not the exact figure; it is that trading costs are a steady, certain drain, while trading gains are uncertain. That asymmetry is one of the reasons the majority of retail CFD accounts lose money, as explained in why most retail CFD traders lose.

A-book and B-book: who is on the other side of your trade?

This is the part most people are unaware of when they open an account.

When you buy EUR/USD from a retail broker, you are not buying on an exchange. You are entering an over-the-counter contract with the broker. The broker then has a choice about what to do with the risk. Our guide to how the forex market works explains the wider structure.

A-book (pass-through)

The broker offsets your trade with a liquidity provider, either one for one or by netting many client positions together. It has little or no exposure to whether you win or lose, and it earns from spread markup, commission and swaps. Its incentive is for you to trade more and to stay a client for longer.

B-book (internalised)

The broker keeps your trade on its own books and takes the opposite side. If you lose, the broker gains; if you win, the broker pays. Because a large majority of retail clients lose over time, a book of many small, uncorrelated retail positions can be profitable for the broker in aggregate, on top of the spread.

Hybrid

In practice, most retail CFD brokers do both. They internalise a large share of retail flow, where the client positions partly cancel each other out, and hedge the net exposure or the larger and consistently successful accounts with liquidity providers. The decision is usually made by risk-management systems based on account size, trading style and the broker's overall exposure.

The labels ECN, STP and market maker are often used to describe these models, though they are marketing terms rather than legal categories. Our guide to ECN, STP and market-maker execution covers them in detail.

Where the conflicts of interest are

A B-book broker earns more when clients lose. That is a genuine conflict of interest, and it explains several things regulators have acted against:

• Excessive leverage, which increases the chance of large client losses. In the EU, ESMA's 2018 product intervention measures capped retail leverage, introduced a 50% margin close-out rule and required negative balance protection. See ESMA leverage limits and negative balance protection.
• Trading incentives designed to encourage deposits and frequent trading, which the same ESMA measures banned for retail CFD clients.
• Unfair execution, such as passing on negative slippage but not positive slippage, or manipulating quotes to trigger stops.
• Aggressive sales, including "account managers" who push clients to deposit more or trade more often.

Regulated brokers in the EU and UK must have a written conflicts of interest policy, an order execution policy describing how they achieve the best possible result for clients (best execution), and must disclose their costs and charges in advance. They must also publish the percentage of their retail CFD accounts that lose money. These rules do not remove the conflict. They make it visible and set limits on how it can be exploited.

It is worth adding that A-book brokers have conflicts too, just different ones: they earn more when you trade more, which is not always in your interest either.

How to tell how a broker makes its money

You will rarely find a broker that says "we profit from your losses" on its homepage. But regulated brokers disclose a great deal in their legal documents, and reading them takes less time than most people think.

1. Check the licence and the entity first. The disclosures that matter are the ones from the specific company that will hold your account. Use our guide on how to check a broker licence and the official regulator registers.
2. Read the order execution policy. It should say whether the broker acts as principal (counterparty) or agent, which venues and liquidity providers it uses, and how it handles slippage.
3. Read the conflicts of interest policy. Look for statements about acting as counterparty and how the broker manages that.
4. Read the costs and charges disclosure or key information documents. These show spreads, commissions, swaps and fees per instrument.
5. Check the retail loss percentage, which EU and UK brokers must show prominently. Figures commonly range from about 61% to 89%.
6. Look for the small fees in the fee schedule: inactivity, withdrawal, conversion.

If a broker cannot or will not provide these documents, that is your answer.

A note on how publishers like us are paid

Brokers also pay for clients. Comparison sites, educators, influencers and "signal" providers are frequently paid by brokers per referred client (CPA), as a share of the revenue the broker earns from those clients, or a mix of both. Revenue-share arrangements in particular mean the referrer earns more the more the client trades, so it is worth knowing who is being paid when someone recommends a broker.

The Pip Report earns affiliate commission from some of the brokers we review. We explain exactly how on How we are paid, and our scoring method is published on How we rank. Commission does not affect scores or rankings.

Common misconceptions

• "Zero commission means free." The cost is in the spread markup. Compare on all-in cost per lot.
• "Market makers always cheat their clients." A B-book model creates a conflict, but a well-regulated market maker must still provide fair prices and best execution. Licence quality matters more than the execution label.
• "ECN brokers have no conflicts." They earn from volume, and many run hybrid models whatever the account type is called.
• "Tight spreads mean a cheap broker." Not if commission, swaps, conversion and inactivity fees are high.
• "The broker wants me to lose, so I will do the opposite." The broker's edge in a B-book comes from the costs you pay and from the behaviour of thousands of clients, not from any one trade.

Frequently asked questions

Do forex brokers profit when you lose?

Brokers that take the other side of client trades (B-book) gain when those clients lose. Most retail brokers do this for at least part of their flow. Brokers that pass trades to liquidity providers (A-book) earn from spreads, commissions and swaps regardless of whether you win. Many use a hybrid of the two.

What is a spread markup?

The amount a broker adds to the raw market spread it receives from its liquidity providers. On commission-free accounts, the markup is the broker's main income from your trades. It is not shown separately; you only see the final, wider spread.

Are commission-free forex accounts cheaper?

Not necessarily. On many brokers, a raw-spread account with commission works out cheaper per lot than a commission-free account with a wider spread. Calculate the all-in cost: spread in pips times pip value, plus round-turn commission.

How can I find out if my broker is a market maker?

Read its order execution policy and conflicts of interest policy. Regulated brokers must state whether they act as principal, meaning they are your counterparty, and how they manage the resulting conflicts. Execution labels in marketing material are less reliable than these documents.

Do brokers make money from swaps?

Yes. The swap you pay or receive includes a markup over the broker's own financing cost. For positions held for days or weeks, swap charges can exceed the spread and commission combined.

Is it bad that my broker is my counterparty?

Not in itself. It creates a conflict of interest, which regulators in the EU, UK and Australia require brokers to manage and disclose, and it is how most retail CFD trading works. What matters more is how strongly the broker is regulated, how fair its execution is and what you pay in total.