Wednesday, January 29, 2020

Affiliate Commissions In The Forex Niche – Here’s the Math!

forex-commission-negotiationFor most affiliates, negotiations with a broker usually focus around the commission structure.

First off, if you’re even considering a revenue share deal then it’s in your best interest to understand how commissions are calculated in forex. If you are unsure, read our article on how affiliate commissions in forex are calculated.

Ok, I Got It… What Next?

Now that you know the basic math behind commissions, follow these simple steps to help you figure out the best revenue share model.

Is The Broker Spread Based Or Commission Based?

In our previous article, we mentioned how commissions can vary based on the broker’s business model. Below is a short table which illustrates revenue potential on a hypothetical trade, which should help you figure out the best revenue share model.

The following table is calculated based on the following conditions.

  • A trader makes a initial deposit of $500.
  • A trader trades only EURUSD with 0.1 Lot and makes a total of 30 trades.
  • The spread-based broker charges a fixed spread of 3 pips.
  • The commission-only broker charges a commission of $6.50 per lot.
  • You get a default commission of 25%.

Spread Based Broker – Potential Revenue

Symbol Total Units Pip Value Total Revenue Your RevShare
EURUSD 0.1 x 30 trades $0.30 30 trades x $0.3 = $9 $2.25

Commission Based Broker – Potential Revenue

Symbol Total Units Unit Comm. Total Revenue Your RevShare
EURUSD 0.1 x 30 trades $0.65 30 trades x $0.65 = $19.5 $4.88

Going by the above example, it is quite clear that a commission only broker offers a higher chance of making more from your referred traders. But don’t let that blind you! Not all commission-only brokers charge $6.50. It varies from as low as $4 or even $3, reducing your net commissions. Always do the math and see exactly what it is with the affiliate program you are promoting.

If it’s low, it makes sense to negotiate for a commission of 30% or more when dealing with a commission-only broker.

When negotiating with a spread based broker make sure to know the typical spread the broker charges. While 2-3 pips is the norm, some brokers offer spreads on EUR/USD as low at 0.9 pips! While it might be good for the trader that you refer it’s not so good for you.

Striking A Balance – Forex Commissions

It also helps to understand your trader’s psyche. A trader might opt for a higher spread broker simply because that broker offers a pair he wants to trade, or if the broker offers a trading platform in the trader’s native language.

It also help to understanding the average trade volume generated by your referred traders.  This can help you negotiate better deals!

Most forex brokers tend to link an affiliate’s performance to the number of traders referred, but affiliates can actually play it smart and instead put the focus on volume. Referring 10 traders that swing trade a couple of times per month does not generate much revenue, but referring 1 scalper that trades a dozen times per hour means higher revenues and more leverage when you are negotiating with your affiliate manager.

Initial deposits also play a critical role. On average, a $100 – $300 depositing trader would not be able to generate significant revshare earnings for you as an affiliate.

Contrary to the above statement, if your traders are smart (or if you teach them well), it is indeed possible for them to increase their account equity tremendously, which in turn results in higher revenues for you as an affiliate.

To summarize:

  • Check what spreads or commissions the broker charges.
  • Understand your average trader. Are they high volume traders?
  • Do the math and project your earnings. See if a few percentage point increases can help increase your bottom line revenues.
  • If your traders are low volume but have high initial deposits, opt for a hybrid deal.

Last but not the least, don’t be too rigid and expect a high revenue share from the beginning. Give yourself and the broker time, and after referring a couple of traders you will be able to better judge their trading style and you’ll be in a better negotiating position.

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