Why should brokers educate their traders?

FinanceFeeds Editorial Team

Almost all brokers are providing their clients with educational materials and trading courses. Some of them even have ebook libraries for beginner traders to download and read. There is a reason why brokers should always encourage their traders to study trading. In this article, we will discuss why it is in every honest and trustworthy broker’s interest that their traders are making money constantly and in the long term. So, stay tuned.

Why should brokers provide learning materials?

The broker provides access to traders to exchanges and is thereby an intermediary between traders and exchanges. We could compare them to any services industry that provides some assistance in return for a small fee. Traders can learn trading from successful traders and quality educational materials and courses. Many brokers offer educational resources for their clients. To connect these two and understand why brokers try to educate their traders, we should first understand how brokers make money exactly, and then we conclude why it is in their interests to provide quality education for their traders.

How do brokers make money?

To answer this question, we should first understand how brokers operate. Brokers are intermediaries between exchanges and traders who want to buy and sell specific assets, called trading instruments. Brokers’ main source of income is commissions and other trading fees charged for connecting traders to exchanges. They make money by collecting fees and commissions from traders during the opening and closing of each trade. The first and most important of these revenues are spreads. The spread is the difference between buying and selling prices of trading instruments. The spread is the main source of income for brokers, and they can make money no matter what is happening on the market.  There are other commissions and fees too related to overnight trading and swaps.

How can traders make money?

Traders make money when they have a good understanding of financial markets and have a trading strategy that makes money in the long term. For this, they need quality education and practicing skills. A demo account with a comprehensive trading course run by an experienced trader will do the job. Many brokers have experts conducting trading courses, but sometimes scam brokers use this practice to mislead customers into just depositing money with them. Just check if the expert is a real trader with successful experience of at least 1-year trading live markets.

Connecting the two

Because of the information described above, brokers need successful traders who are constantly opening and closing trades to collect spreads, swaps, and other commissions from them. The best clients for brokers are traders who trade frequently. One way to have successful traders is to teach them how to make money trading. In order for traders to maintain their successful trading activities, they will need to educate themselves with proper knowledge of financial markets and trading details. Well-designed trading guides can do just that. Speaking about guides, a guide for beginners that want to learn FX should always come first in mind.

Main arguments for why brokers should educate their traders

  • More trading – more commissions. Frequent trading equals more revenues from spreads and commissions
  • Reducing marketing costs. Advertising is costly for regulated entities, and many brokers spend most of their profits on advertising their services. Successful traders’ base reduces marketing costs for the broker, as they are not as keen to attract new customers to maintain and increase their revenues. Good word spreads faster and successful traders are going to advertise the broker for free when they tell their friends how they make money.
  • Positive reviews. The happier traders brokers have, the higher the ranks in reviews.
  • Loyal client base. Providing their traders with educational materials also builds loyalty for brokers and ensures long-term relationships that can be beneficial for both parties.

So, it is logical that brokers try to build a trader base with successful and professional traders who trade frequently and make money long-term, ensuring the broker’s survival in this competitive scene.

Key takeaways

Brokers are intermediaries between traders and exchanges, charging small fees for their services. Since brokers are making money from spreads, swaps, and other commissions, it is crucial for them to have a loyal client base for long-term survival. More trades, more revenue for brokers. It is in the direct interest of brokers to provide their traders with quality educational resources. It is expensive for brokers to advertise their services, so the cheaper alternative is to build a loyal trader base who are making money constantly and guaranteeing brokers constant revenues from fees and commissions.

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