Why do some brokers offer fixed spreads and rebates on the clients’ accounts?

Written by Research

Some of these broker / dealers offering dealing services as well as rebates as a promotional and marketing tool to attract prospective clients and other investors to open accounts knowing that they could save on cost while still trading the market. These companies do make their revenue from the spread and to top it all plus the commissions that they charge to the clients. However, one may wonder why some of these companies do provide rebates and some don’t. The reason is that some trading platforms has embedded into their equation some mark-ups and mark-downs on the price quoted on screen that would substantially increase their revenues due to the volumes being traded on a day to day basis. And to find one particular broker / dealer who admits that they do not charge those hidden markups or markdowns is pretty amazing.

In addition to this; the trading limits on leverage works to the advantage and disadvantage of the clients / investors in different ways. Just to give a thorough example: if a certain price quoted in an active market is very attractive for a bigger exposure this needs to be cleared with the broker. Otherwise the client is limited to the pre-set menu provided in the trading platform. Most trading limits is set at 100K and others at 800K. If a client happens to have opened an account with a 100K limit and would like to trade beyond that; he has to place another order but now with a different price level. By doing it this way it would increase the frequency of trades made by the clients. As a matter for discussion; this should be covered in the meeting prior to opening a trading account with the broker / dealers. One needs to know and set the parameters of trading before anything else. Rebates and commissions will definitely vary and can be negotiated with the broker / dealer once every single issue has been covered. This is part of the due diligence that an investor needs to consider seriously.