Rebates and why they bend the pricing

[Fairman]

Rebates and why they bend the pricing

Some programs pay a rebate per lot traded, either to the client or to an introducer. It sounds like a pure bonus. It affects how the pricing is built.

If a rebate of 0.5 pips per lot goes back to the trader, the broker has to earn that money elsewhere, through the spread, the commission, or the execution. A rebate-heavy account can have spreads that are a few tenths wider than a similar account without one.

The net effect depends on the arithmetic. For a very active scalper, rebates can be a meaningful share of returns. For a trader with few trades, a lower spread would be more valuable than a rebate.

Rebates can also attract volume-oriented behavior: overtrading to earn more rebate, which loses more in cost than it returns.

The comparison to make is total cost per round-turn lot, after rebate. Include the spread at the times traded, commission, slippage, and the rebate amount. The account with the lowest net cost wins, whether or not it has a rebate.

It's also worth confirming when rebates are paid and whether they're clawed back in any circumstance.

Rebate-adjusted, what does the all-in cost per round-turn lot come out to?

[Amanhasnoname]

I went through exactly this comparison when I moved accounts. The rebate account paid back around a third of a pip per lot, which looked generous, but when I checked the spread on EURUSD during my actual trading hours it averaged about 0.3 wider than the raw account at the same broker. After commission the two were nearly identical, and the raw account slipped a little less on my stops.

The behaviour point is real as well. I noticed I was taking extra marginal trades late in the session because each one felt partly paid for. Once I added the rebate as a separate column in my journal and saw it next to the cost of those extra trades, the habit went away pretty quickly.

For me the all-in number came out at roughly seven dollars per round-turn lot on both accounts once rebate, spread and commission were netted. I stayed with the raw account because it was simpler to measure, and I don't have to wait for monthly rebate payments that I can't fully check.