Forex and CFD brokers do not make money by predicting the market or by managing your investments. They make money by charging you for access to it. Understanding exactly where that revenue comes from — and where a broker's interests sit relative to yours — is one of the most useful things a new trader can learn before funding an account.

The four revenue lines

Most retail forex and CFD brokers earn money from four places. None of them is a secret; all of them appear somewhere in a broker's pricing pages, fee schedules and account terms. The skill is knowing how to add them up.

The spread. The spread is the difference between the bid and ask price. A broker quotes you a slightly wider spread than the one it pays in the underlying market, and that difference is revenue. On a spread-only account, this is usually the main charge. Spreads widen when the underlying market spreads widen — for example around scheduled news — and they differ between account types.

Commission. Raw-spread accounts flip the model: the spread is kept close to the wholesale rate, and the broker charges a fixed commission per lot, usually quoted as a round-trip fee. Total cost, not the headline spread, is what you should compare between account types.

Overnight financing. When a leveraged position is held past the daily rollover, the broker applies a financing adjustment based on the interest rate differential between the two currencies — plus, in most retail models, a markup. Hold a position across enough nights and this cost can compound into something material. A position that pays away one pip per night costs roughly $70 over seven nights on a single standard lot of a USD-quoted pair at typical pip values — more than many round-trip spreads.

Account fees. Inactivity fees, withdrawal fees on some payment methods, and currency conversion costs on deposits or withdrawals in a different currency than your account. These are small individually but are the lines brokers most often get compared on unfairly — or, from the reader's side, missed entirely.

Spread-only vs raw-plus-commission: the total cost is what counts

Comparing a 1.1-pip standard account against a 0.2-pip raw account with $7 per lot round-trip commission sounds like the raw account wins. Adding it up on a single standard lot of EUR/USD, where one pip is worth about $10:

• Standard, spread-only: 1.1 pips × $10 = $11.00 round trip.

• Raw plus commission: 0.2 × $10 + $7.00 = $9.00 round trip.

These numbers are illustrative, not an observation of any specific broker. The two accounts are close in this example, and which one is cheaper depends entirely on the broker's actual pricing. The lesson is not "raw is better"; it is that the comparison must be made in total dollars per round trip, on the instruments and trade sizes you actually use.

Where the money meets the conflict of interest

The pricing model above describes how brokers charge. A separate question — and the one regulators care most about — is what the broker is on the other side of.

In one model, the broker hedges its clients' positions with external counterparties and earns its margin on top of the wholesale cost. Its income does not depend on whether the client wins or loses. In the other model, the broker is itself the counterparty to client trades, and a client's loss can flow to the firm as revenue. That structure is not illegal where it is permitted, but it changes the incentive: the firm profits when its clients lose.

The UK's Financial Conduct Authority (FCA) put this contrast on the record in its 2019 policy statement on CFDs. Discussing exchange-traded CFD-like options, the FCA noted that firms issuing those products "do not benefit from client losses so are not incentivised to act against their clients' best interests" — a statement that only means something because, for the products the FCA was restricting, firms could.

For you as a reader, this does not mean "counterparty broker = bad broker." It means the conflict is a structural feature to be managed, not assumed away. Regulated firms in the UK and EU must manage conflicts of interest and were banned from the most aggressive tools for exploiting them: inducements, bonuses and volume-based rebates that reward clients for trading more.

Risk context: the loss statistics regulators forced into the open are stark. UK rules require every CFD provider to disclose the percentage of its retail client accounts that lose money, and the FCA's intervention followed evidence of "high proportions of consumers losing money" with higher leverage. Any broker's published loss percentage tells you about the client base of that specific firm — treat a low figure on one broker's site as a reason to check the disclosure methodology, not as a promise about your own outcome.

Brokers price their own costs into yours

Another FCA-documented point is easy to miss. When the UK considered mandatory negative balance protection (a guarantee that a client cannot lose more than the funds in the account), a third-country broker argued in the consultation that the cost of providing it "would result in wider spreads (e.g. higher trading costs)."

Whatever you think of the argument, the mechanism it describes is real and universal: protections, hedging costs, and regulatory overhead all get marked into the price you pay — in the spread, the commission, or the financing rate. A broker advertising costs below its own hedging costs is either subsidising (possibly temporarily, possibly cross-subsidised from other flows) or earning the difference elsewhere. Free is not free; it is priced somewhere.

What regulators did about the conflict

The UK and EU responded to these structural conflicts with concrete product rules, made permanent by the FCA in PS19/18 (effective 1 August 2019 for CFDs, 1 September 2019 for CFD-like options), following the European Securities and Markets Authority's (ESMA's) temporary measures from August 2018:

• Leverage caps of between 30:1 and 2:1 for retail clients, tiered by instrument.

• Margin close-out when funds fall to 50% of the margin needed for open positions.

• Negative balance protection — losses capped at the account's funds.

• A ban on monetary and non-monetary incentives, including volume-based rebates, to trade CFDs.

• A standardised risk warning disclosing the percentage of retail client accounts that lose money.

These measures had measurable effects. The FCA's analysis found ESMA's temporary intervention reduced client losses by £77m between August and October 2018, and its own analysis estimated its leverage limits would save UK consumers £259m–£443m per year.

Scope check: these specific protections apply to UK-regulated firms (with parallel EU measures). They are not universal. Offshore-regulated entities may legally offer higher leverage and deposit bonuses, which is precisely why those features are more common there. Availability of a protection depends on which entity you open the account with — not on the brand name.

Reading a broker's incentives: a practical checklist

1. Find the revenue model. Spread-only, raw-plus-commission, or both. Add up total round-trip cost on your instruments, in dollars, not pips.

2. Read the loss disclosure. The percentage of losing retail accounts is a required, comparable figure under UK/EU rules. It describes past client outcomes at that firm, not your future.

3. Check which entity and license serves you. Protections like negative balance protection and leverage caps attach to the contracting entity. Brand similarity across websites does not mean the same rules apply.

4. Be suspicious of generosity. Deposit bonuses, high leverage marketing and volume rebates are the exact practices regulators restricted where they could — because they encourage more trading, which is the direction of the broker's income and, on the evidence regulators reviewed, of client losses.

5. Check the execution policy. It states where your orders go and how the firm is compensated. If the language about being the counterparty is opaque, that opacity is itself information.

None of this identifies a universal winner, and no fee model or regulatory tier makes trading safe. But knowing how your broker is paid — and which conflicts regulators considered serious enough to legislate against — turns broker comparison from marketing review into a factual exercise.