What’s the deal with deposit bonus?

By Admiral Markets

Bonuses are virtual money that brokers tend to give their clients, to increase the trading volume and keep customers for longer.

Bonuses from honest companies are considered a win-win situation.

For example, let’s say you deposit $1000 and you receive 20% bonus.

By just depositing, you have instantly made 20% profit.

But to be able to withdraw it, you need to make a certain amount of trades.

It’s like the broker gives you a loan to work with and you have to return it by making a certain degree of trading volume.

You signed up to trade in the first place, so you will make the trading volume either way.

So why not make some extra green on the side?

And here is the silver lining:

… it won’t cost you a thing and you can return this loan at your leisure…

…and if you lose it’s not a big deal, because you don’t have to return it.

But there is a downside to it as well.

You won’t be able to withdraw your money until either you:

1. cancel the bonus; or
2. do the required trading volume.

Now let me ask you something. What is the easiest way to make a small fortune?

Put your answers in the comment section below.

What to look for

As I said above, its win-win situation if you receive a bonus from an honest company.

But some brokers have turned the bonus system into a continuous source of income, by making the required volume unreachable.

In fact, there are cases where brokers require a 10 round-turn lot per $1bonus or they will freeze your account and deny you access on false accusations.

And then there’s brokers that are very restrictive so they can reduce costs.

In my experience, the most important aspect of choosing to use a deposit bonus lies in choosing the right broker offering it.

Very few brokers offer personalized bonus conditions, specially tailored to your requirements.

This type of service is more reliable but requires a bigger deposit for the broker to give you those particular conditions.

Some bonuses can be used as equity and thus increase the resilience of the account.

It is common knowledge that the bigger your accounts are, the more secure it is.

And why is that?

Because a big account can sustain more trades and use less leverage.

To learn more about how to control risk, check-out our risk-management article.

While traded volume is the way that brokers return their investment – it’s still important to remember how important it is to receive the fairest amount per lot.

And as I said above, there are not too many brokers offering that.

Bonus trading best practices

Now that we have covered the basics, let’s get down to business.

There are two best practice approaches to trading your bonus.

The first approach is strategies with at least 50% or more profit expectancy.

But what does that mean?

Well, those are strategies that at least 50% of the trades taken end up profitable.

For example:

… if you toss a coin in the air and buy whenever it faces up and sell whenever it faces down…

… you will have a strategy that produces 50% profitable trades.

In the end, you will end up neither winning or losing.

But you will make a lot of trading volume by using this strategy and this can free up your bonus.

So in the end, you will have made a profit equal to the bonus that you applied for.

Trading the coin toss strategy

It is important to note that generally speaking, it is impossible to have the exact 50%-win ratio on your trades every time because it requires many unpredictable factors.

But we can get close to that 50% by following these simple rules of thumb.

1. Stop loss should be equal to the Take Profit plus the average spread for the session.

Why is that important?

Well, when you enter a trade – you either enter on the bid or at the asking price, depending on the direction of the trade and exit at the opposite.

If you enter at bid price you exit with ask price, and if you enter into the asking price you exit in the bid price.

1. Never have an open position during a news release unless you have a strategy specifically tailored to trading from it – like those shown in this webinar.

If you have trades that are still open before news releases related to the traded pair, always make sure to close them.

The reason for this is that markets cause a lot of volatility:

…which causes the price to move sharply in both directions…

…which might cause the trade a winning trade to end up losing.

But you can open random trades with small Take Profit and Stop Loss five minutes before news is released, to try and get where prices might head.

1. Be disciplined.

Remember it’s up to you to make sure this strategy makes money.

You can refer to 7 tips for staying in the trading zone for more info about this.

One tip is to ensure a random entry.

One way of doing this is by using a coin; another more accurate way is using software for random number generation.

You can find a lot of free software like that on the internet.

Considering everything said above, it’s always better if you have a strategy that makes more than 50% winning trades.

You can develop a winning strategy, by enjoying unlimited access to Admiral Markets education materials.

Expand your strategic knowledge.

Correlation trading

The reason for the dependence of currencies pairs is very simple to understand once you think about it.

Simply put:

…if you were trading the Euro against the dollar for example…

…you are trading a derivative of the U.S. Dollar and the Japanese Yen and U.S. Dollar and Swiss Franc pairs.

Therefore, EUR/USD must have some sort of correlated to one, if not both of these pairs.

Correlation can’t be merely explained by the fact that currencies are in pairs and move in alternate or similar directions.

No. Correlation is the result of more complex forces than that.

In the financial world, statistically measuring the relationship between two assets is called correlation and the sole measurement correlation coefficient.

The correlation coefficient is a value between negative 100 and positive 100.

A -100 correlation value means that the two pairs are moving in opposite directions to one another, mirroring each other’s results.

A +100 correlation is when two assets move in the same direction.

And a correlation of 0 means that the two currencies move independently of one another.

The concept of this strategy is pretty simple:

…we know that if two pairs are correlated…

…then it means that that if one goes up, the other will follow.

But in reality, markets are not perfect.

Sometimes if one pair goes either up or down, it takes some time for the other pair to follow.

So this is when we place a trade.

The principles of this strategy are straightforward. Follow these steps:

1. open your MetaTrader 4 Supreme Edition
2. open your Correlation Matrix (pictured below)
3. choose currencies with correlation bigger than +90 and lower than -90
4. once you confirm that they are correlated, you can place a trade whenever one currency makes a move e.g. let’s say to the downside – then we buy the first currency and sell the second
5. you close the positions whenever the cumulative value of the floating loss or profit of the two trades is active.

This will be best explained with a live example.

I have picked Euro versus the Canadian Dollar and Euro versus the Australian Dollar, which both had correlation of 93%.

So I opened the charts and waited until one made a move and the other failed to follow it immediately.

In the example below, we can see that EUR/CAD has made a bullish move and EUR/AUD has failed to follow it.

So what I will do now is I will place a sell trade on EUR/CAD and I will put a buy trade on EUR/AUD.

So as we can see now at the moment I am losing money, -376.97$ to be exact.

But after a ten minutes the difference between the two trades was +57.31$, so I closed the two positions.

It is also important to pay attention to the pip value of the two pairs, because different currencies have different pip values.

Tip: For best results look at the daily period correlation with at least 100 bars of history (the more bars, the better) and after that go to lower times like the five or the fifteen minute and look at the same pairs that you choose from the daily charts. If there is a dramatic difference, then place the trades.

For more information about correlation please watch the video below:

Cheers and good trading,

Vassil Nikolov

Article by Admiral Markets

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Admiral Markets is a leading online provider, offering trading with Forex and CFDs on stocks, indices, precious metals and energy.