How Retail FX Brokers Make Money

This article is educational and is deliberately not a guide to choosing a broker. It explains how the retail FX industry earns its revenue, because a reader who does not know how a counterparty is paid cannot assess what they are being offered. It names no firm, ranks nothing, and compares no providers — and that omission is intentional rather than incidental. The subject sits closer to marketing than any other in this portal, and a description of broker models that shaded into a comparison would stop being education. Nothing here is a recommendation to open an account with anyone.

A reader who opens a retail FX account usually does not buy currency, does not own currency, and does not transact in the interbank market the opening article described. In most cases they enter a contract with the broker whose value tracks a currency pair — a derivative, in the sense Pillar 17 established. That single structural fact generates everything else in this article, because it means the firm quoting your price is also your counterparty.

The five revenue sources

The spread. The primary source, and the one the spreads article quantified: the firm quotes a price to buy and a worse price to sell, and the difference is revenue on every round trip. Because it is embedded in the price rather than itemised, it can be — and routinely is — described as no commission. Commission. Some models charge an explicit per-lot fee alongside a narrower spread. This is not worse or better than a wide spread; it is the same cost presented differently, and the only way to compare is to add everything up. Financing. Charged or credited for positions held past the daily cut-off, based on the interest-rate differential plus a markup. The markup is the revenue, it accrues daily, and it is invisible to a reader who never checks. Ancillary charges: inactivity fees, withdrawal fees, currency-conversion charges on deposits and profits, and fees for guaranteed stops or premium data. Individually small, collectively material, and disclosed in documents few people read. And client losses. This is the one that needs care, and it depends on a distinction worth understanding properly.

Two models, and the conflict that follows from one

Industry shorthand calls these A-book and B-book, and most firms run both. In the A-book model the firm passes client positions on to liquidity providers, hedging its exposure. It earns the spread and commission, is indifferent to whether the client wins or loses, and its revenue depends on volume. In the B-book model the firm takes the other side itself and does not hedge — so a client's loss is the firm's revenue and a client's gain is the firm's cost. This is called internalisation, and it is not illegal, hidden in principle, or unusual: it is a disclosed feature of the market-maker model, it can produce better pricing for clients because the firm is not paying to hedge small offsetting orders, and firms running it are supervised. But the conflict of interest is structural rather than incidental, and it should be stated plainly rather than softened. When a firm holds the opposite side of your position unhedged, its interests and yours are directly opposed. Regulated firms manage this through disclosure, execution-quality obligations, and supervision. Managed is not the same as absent — the same distinction the securities-lending article drew about fund managers keeping a share of lending revenue. Three practical implications. Most firms route some flow each way, often based on client profiling, so a given account may be internalised or hedged without knowing which. Execution quality is a cost even where it is not a fee — requoting, asymmetric slippage, and latency all affect outcomes, and they are harder to observe than a spread. And the published loss statistics take on a different colour in this light: where firms are required to disclose the proportion of retail clients who lose money, those figures describe the outcomes of clients whose losses are, in the internalised part of the book, the firm's revenue. This portal draws no conclusion about intent from that arrangement, because the structure does not by itself establish misconduct and the industry contains firms operating properly under supervision. What it does establish is that a reader should know which model applies to their account, and that the answer is in the client agreement rather than the advertising. One further point, which is the most consequential in the article. Regulation attaches to firms, not to FX as an instrument, so protections vary enormously by jurisdiction: whether negative-balance protection applies, whether client money is segregated, whether a compensation scheme exists if the firm fails, whether leverage is capped, and whether loss statistics must be published. A firm marketing to you from one jurisdiction while regulated in another — or in none — offers materially different protection, and this is the single most decision-relevant fact about any FX account. It is also verifiable in minutes from a regulator's public register, which is where a reader should look rather than at a firm's own description of itself.