Why retention depends on education

Signing a client up is only the start of an IB relationship. Clients who do not understand risk often lose their deposit quickly and leave, sometimes blaming the person who introduced them. This lesson explains why education is the foundation of retention, and why you must never try to increase your commission by pushing clients to trade more.

Why clients who blow up their accounts leave

To "blow up" an account means to lose all, or nearly all, of the money in it. It usually happens for predictable reasons:

• using too much leverage, which is borrowed exposure that magnifies losses
• risking a large share of the account on each trade
• trading without a stop-loss, an order that closes a losing position at a set price
• trading too often, or increasing size to win back losses

None of these is bad luck. They are gaps in knowledge and discipline, and education can close them. A client who understands risk is less likely to lose everything in their first month and more likely to stay engaged, keep learning and speak well of you.

Worked example: how risk per trade affects survival

Two clients each start with 1,000 USD and hit a run of 10 losing trades in a row, which can happen to any trader. Each risks a fixed percentage of their current balance on every trade.

The working:

• 1% client: each loss leaves 99% of the balance, so after 10 losses the balance is 1,000 × 0.99 to the power of 10 = 1,000 × 0.90438 = 904.38 USD.
• 10% client: each loss leaves 90%, so after 10 losses the balance is 1,000 × 0.9 to the power of 10 = 1,000 × 0.34868 = 348.68 USD.

Recovery is the harder part. To get back to 1,000 USD:

• the 1% client needs a gain of 1,000 ÷ 904.38 = 1.1057, which is about 10.6%
• the 10% client needs a gain of 1,000 ÷ 348.68 = 2.8680, which is about 187%

The first client can carry on learning. The second has probably lost confidence, and quite possibly their interest in trading altogether. Teaching clients about risk before they trade live is the single most useful thing you can do for them.

An illustrative look at commission

IB commission is often paid per lot traded by referred clients. The figures below are illustrative only. Real commission depends entirely on genuine client trading and on your broker's terms, and it can be zero.

Assume an illustrative rate of 5 USD per standard lot:

• Client A learns first, then trades 2 standard lots a month for 24 months: 2 × 24 = 48 lots, and 48 × 5 = 240 USD.
• Client B trades 20 standard lots in their first month, loses their deposit and leaves: 20 × 5 = 100 USD.

In this example, the patient, educated client generates more over time. But the ethical case does not depend on the numbers. Even if a reckless client happened to generate more commission, encouraging that behaviour would still be wrong.

The conflict of interest

Because commission usually rises with trading volume, you have a financial incentive for clients to trade more, whether or not it is good for them. That is a conflict of interest: a situation where your own interest could pull against the interests of the people you serve.

You manage it by refusing to act on it:

• never encourage clients to trade more often, use larger sizes or higher leverage
• never suggest they deposit more to "make it worth it" or to win back losses
• never run promotions that reward volume, such as prizes for the most lots traded
• disclose openly that you are paid based on client trading
• judge your own success by how well clients understand risk and how long they stay, not by lots traded

What a long-term relationship looks like

Clients who stay tend to have an IB who:

• teaches before selling, and keeps teaching after sign-up
• is honest about losses, including their own
• answers questions promptly without giving personal recommendations
• respects a client's decision to trade less or stop altogether

Key takeaways

• Clients who lose their deposit early usually leave, and education is the best protection against that.
• Small risk per trade keeps clients in the game; large risk can make recovery almost impossible.
• Any commission figures are illustrative; real commission depends on genuine client trading and broker terms, and can be zero.
• Encouraging clients to trade more to raise your commission is a conflict of interest you must never act on.
• Measure success by client understanding and longevity, not by volume.