The proposition is very simple. Deposit an amount with the broker, who in turn will top up your account to increase your trading capital which all sounds great. In my case, I suggested I was considering a deposit of $500, and they offered a sign up bonus of double this amount, in other words $1,000 thereby giving me a total of $1,500 in my account. We all know there is no such thing as a ‘free lunch’, and it is in the small print you discover why. The terms of this bonus are you will not be able to access any profits from your account until you have executed a minimum of 40, 50 or 60 times the bonus amount. In other words, you will only have access to any profits in your account, once you have achieved anywhere between $40,000 to $60,000 in profit – a staggering amount.
In the example above the lock in ratio was 40 times the deposit, but there are some much higher multipliers, with 60 currently the maximum. But what does all this mean?
Suppose we have decided to open an account offering such a deal, and we place our first trade with a maximum loss of $50. The trade closes as a loser and our initial deposit is now reduced to $450. Can we withdraw our deposit? In the above case I was told I could do so. But let’s imagine our first trade is a winner. Can we withdraw the profit of $50? The answer is no. And here is the kicker. You will only be able to withdraw any profits once you have achieved the requisite trading volumes in dollars, as required under the terms of the bonus.
Taking the ploy of the bonus concept a little further, and how it has a more subtle and corrosive aspect. This ploy is designed to lock you and your money into the account. Next it is there as a marketing tool to help attract new clients. Finally it is designed to provide you with leverage, a subtle but immensely powerful way to get you to trade in bigger positions. These brokers know their customers will ultimately lose, and in providing leverage wrapped up as a bonus, it simply helps them lose even faster.
What generally happens is the first trade is small and loses, and is then followed by increasingly larger trades, as the ‘get even’ mentality of gambling takes hold. The double or quits mentality finally takes over, and the client loses all their money, helped by the subtle leverage kindly offered by the broker. And if all this sounds a little cynical, sadly these are the facts and cannot be dressed up in any other way.
A bonus deposit is added to your account, but not to your balance, so it is available for trading matched by your deposit, but most definitely not available for withdrawal.
In summary, this type of bonus is rarely referred to as a leveraged bonus, but this in simple terms is what it is. It is a powerful marketing tool which locks clients and their money into the company, whilst simultaneously providing increased funds for trading larger positions.