How Do Binary Option Brokers Make Their Money

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How do brokers make money

An important question that I am sometimes asked is: How do brokers make money? Most people think brokerages make money when the client loses money. Therefore, many people think that binary options are a fraud because brokerages will do everything to take the client’s money. It’s not quite like that.

There are some brokerage firms, that in fact, keep the client’s money because in reality, they do not trade in the market. They just wait for the client to lose his money in order to make a profit. These binary options brokers can be called fraudulent.

To avoid these brokerages, you should always choose a brokerage that is regulated by a credible authority like CySEC. Most of the brokerages on this site are regulated by CySEC. (View the list here).

Tips from our Professional Trader: 6 reasons to have 2 accounts

Do you know that you should work with more than 1 broker?
Check the 6 reasons why you should have account with at least 2 brokers:
  1. Each platform has its differences. If you try different platforms you may find those more suitable to your trading style.
  2. Each broker has his own payouts that keep changing during the day. If you want to open a trade and one offers 60% and the other 80%, you will choose the one with best payout, no?
  3. Sometimes the brokers close some assets, if you have just one account and you want to trade on that asset and it is closed, you will LOSE that trade, no?
  4. If there is an issue with your Broker’s platform, or they are updating it you’re not able to trade, unless you have another account with other broker.
  5. Deposits and withdraws. Brokers keep changing the deposit and withdraw methods, imagine you need cash fast and your withdraw system is closed at that moment on your broker, what do you do?
  6. Each platform has its owns indicators and trading tools, imagine you found a new stratey and it does not work on your broker because it uses an indicator that your broker does not offer.

Below you can find our main trader suggestions on brokers:

How do brokers make money:

Normally, Forex brokers make money on the Spread.

The Spread works like this: there is the purchase price and the selling price of an asset, for example in the EUR/USD when we open an order, there is the ASK and the BID prices, which are the purchase and sale prices.

The difference between the two prices is the spread which is the broker’s profit. That is, they markup the price at which they buy the asset, this markup is the spread and their profit.

With binary options, there is only one price at which the asset is sold. That is why people who do analysis on an MT4 sometimes find that the price there is a little different from the binary options brokerage’s price.

So, when there are no spreads or commissions how do brokers make money?

Payouts or Profits – In every trade that we place there is a profit that normally varies between 65% and 85%.

This percentage is our winning. But we know that if we lose, we will lose 100% of the value invested in the trade.

There are brokers that offer value back in the event of loss, around 15%, but when they do this, they lower the profit percentage. In other words, our average profit is around 75% and our loss is 100%.

So brokers make a profit when clients trade, so the more trades clients place, the more profit the broker makes.

Let’s look at a simple example:

1 – You place a $10 call order in EUR/USD. Someone else places a $10 put order in EUR/USD. One loses and one wins, right? The winner has 75% more, the loser has 100% less. The broker keeps the difference, which is 25%.

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  • Binomo
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The winner receives $7.50 for a total of $17.50. The loser loses the entire $10. The brokerage gets $2.50.

That’s their profit. So those who think brokers want everyone to lose their money so the broker can keep it are wrong, if everyone loses in all their trades the broker will go out of business because no one wants to trade to lose.

This is why some brokers help by providing or sponsoring courses like my course. >HAVE A LOOK Broker Regul.

How Do Binary Option Brokers Make Money?

It is quite hard to understand how do binary options brokers make money. Brokers usually earn through commissions or spreads but binary option brokers work differently. After few heavy financial strikes to the economies around the world as well as the popular scams in binary option trading, everyone knows that binary options brokers are making good money.

How? Let’s find out.

What do Binary Options Brokers Do?

Their job is simple. They just have to understand their traders and offer them a good return on investment. Brokers exist and manage to make money more than traders because no one wants to learn the proper binary option trading.

In simple words, when a not-so-good-at-trading trader loses money, brokers keep it. That’s why brokers in binary options hardly charge any sort of fees from their clients.

The two methods on which binary option brokers rely are:

Pricing of the Binary Options

Liquidity providers are the main source of having pricing structures for binary option brokers. The pricing in binary options on which traders trade are on a little higher side from the prices of the market. Generally, traders are unaware of this fact.

We check asset prices on these trading platforms and always expect the payout in dollars and cents, however, we miss the point that it was not calculated as per the actual percentage payout. Broker retains a certain amount from the actual payout and this is the most common commission of binary options brokers.

Trading Activities

By tracking the trading activities of the clients, binary options brokers have a great chance to increase their earnings. Let’s explain it with an example where a binary options broker holds 500 clients.

Now, let us assume that half of them think that GBP/USD will increase in the next hour whereas half of them think that it will fall down in the same period. If 250 of them bet $100 each on its fall and 250 bet $100 each on its rise, then total money in the market will be $50,000.

If the GBP/USD came up with an 80% paid out ratio and after an hour ended up, all those 250 clients with money on the rise will have $180 each whereas other 250 will have zero return. The total payout will be $45,000. The balance of $5000 is what broker earned.

Honest and Dishonest Brokers

Of course there are honest and dishonest ways to make money, just like there are honest and dishonest brokers; let’s take a look at the differences between the two.

Honest Brokers

Licensed, regulated, accredited, an honest broker generates money from the trading volume. A report of binary options trader data from Japan in 2020 showed that there were 85% traders losing their money.

Luckily, still 15% managed to turn a profit. It is traders’ money supports licensed brokers; the two above mentioned methods are also used by honest brokers.

Another way to brokers make money is by giving their traders a bonus. Offering traders “bonus money” is an old effective trick for which still few new traders easily fall for. When a trader starts trading, brokers offer them bonus money to get them started trading.

For the most reliable binary options brokers, read our review.

Dishonest Brokers

Dishonest brokers have more than enough ways to fool traders. These brokers will offer you help in making money and will get your permission to trading on your behalf. They will show your trades as winners by manipulating the software.

Disreputable brokers will offer you a bonus to lock your deposited money so that you cannot withdraw it. There will be unauthorized charges placed on your credit cards.

Everything will be fine until you ask broker to withdraw the deposit. It is nearly impossible to get money from a scam broker. There will be certain trading opportunities pitched to you in order to stop you from withdrawing the money.

It will be all done manually by a clerk who will ask you tons of questions first. Then will ask you for several verifications and paperwork. It will all end up with no money for you.

Other Ways

There are always small commissions on certain things like purchased contracts, accounting management etc. And at times, traders forget about the interests on their deposits which is again brokers money to take.

Above examples show that there is a balance in both the virtual and real world of the market. However, on both the sides, brokers are easily earning their livings out of traders money.

To learn more you can watch this YouTube video:

Editor’s Note

Don’t slack off on your stocks trading. Learn all that you can from those who’ve made their fortunes in stock trading. Hedge fund trading founding father John Thomas offers a subscription service wherein you receive learning materials on the trading business, and while you’re getting your bearings, he’ll also send you trade alerts that cue you on which stocks to buy and when. All in all, an amazing opportunity to learn from the very best, and make a profit while you’re doing it. Visit John Thomas’ site to learn more.

Comments

mark anthony says

I am really grateful to Bailey Aart for his help in my trading life, I really benefited greatly from his profit am getting from his trades with his strategies given to me without any fee, I was once an epitome of losing and I thought Binary & Forex Trading ain’t real and to good to be true, but now am currently earning great profits, and I was finally able to recover all that my brokers(s) took from me without allowing me to withdraw all through his help I really thank him for his support and I just have to share here that not all are the same as we think they are, they are really people who are God fearing and kind to be with.

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How to Make Money with Binary Options

Internet, now-a-days seems to be the most trending and easiest way to make money Online. Not only it helps people to generate passive income, it has also created thousands of millionaires who are living a lavishing life which a brick and mortar Businessman not able to achieve in the whole life. In the previous post I have published a beginners guide on What exactly are “Binary Options“. In the series of that, this article is solely created to help the traders(specifically newbie traders) to be successful in this and able to make money with Binary Options. But it’s a strong recommendation that you must read that article first, as it covers all the basics, and you will find very hard to understand this article without that.

What you need to understand very clearly?

1) You will not generate money always:

Almost everything in this World comes up with risk and Trading & Options just tops the list. Not every day will be the day you can say that “I have earned…”. Pitfalls will always be there. But what you need is to stick with it. You need to learn from your mistakes and with every trade you will gain experience that will spark you future.

2) Beginning may not always be a good time

“Start” is the thing everyone wants to be the best but only few of them are so lucky. And what mostly has seen in this industry is that new traders invest a particular amount, they trade 2-3 times, lose it and than quit. And this is the fear you have to overcome on. We all are somehow Beginners, and that’s why it’s our birth right to do mistakes. But this doesn’t mean that we should stop doing what we have started. This only means that we need to revise over selves. And the best advice i can give you is to seek guidance from Experienced Traders. Be in touch with them, ask questions, joins forums and learn.

3) The maximum amount to invest

I don’t have an advice to a professional trader as to what amount he/she should risk in Binary options. But what I have for starters is an exact module that will help you to gain enough and not loose your hope(P.S- if you follow it).

Suppose you have invested 100$ binary options with your brokers account. You are damn sure that a particular asset(say Gold) will increase till the end of the day. So you have entered all your amount in it and at the end of the day it’s price fall and you are empty handed.

What you need to do is to only spend 3%-5% of your invested amount. If you have invested 100$, than you will only trade for 3$-5$ in a particular asset. For 200$, you will only trade for 6$-10$ and so on. If you will continue to follow this model than it will give you an outcome you never have imagined.

What to do to Earn Right from the Start with Binary Options?

This will be 3 step guide that you need to follow as suggested Below

Understanding the Basics

If you have never invested any amount in trading before(be it a forex, stock or commodity), than you need to learn a lot to understand the most common terms. No doubt you will learn the most when you have practically played with it, but at-least you have an overview of what’s going on in the whole trading market.

Recognize the trend

Research, Research & Research. The whole mantra behind any successful trader. Whenever you are investing any money on a particular asset, analysis it deeply. See if there are future events that will surely have an impact on it(rise or fall). There is always one thing that all the professional traders and market analyst believes in i.e “monitoring of trends” . An asset will definitely have an impact in the direction of great financial powers like investment Funds and Banks.

What we need to focus is on the asset history. If the asset value is continuously increasing, than the chances that the asset will rise in the future are much more as compared to it’s decreasing value. And therefore you need to choose that asset and invest on it. The logic will be same in case of decline.

An example so that you can understand easily

Uptrend graph

The time frame of this graph is set for every 5 minutes

You can clearly see that the value of the asset is increasing continuously. And if you put a CALL to it than the probability of getting returns are much more as compared to the loss.

Downtrend graph

The time frame for this graph is set for every 5 minutes

Same is the case of this. If you take PUT option for this than you will definitely generate money.

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    The Best Binary Options Broker 2020!
    Perfect For Beginners and Middle-Leveled Traders!
    Free Demo Account!
    Free Trading Education!
    Get Your Sign-Up Bonus Now!

  • Binomo
    Binomo

    Good Broker For Experienced Traders!

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