Have you noticed how many binary brokers are out there? It seems like every week a new one pops up, and to be honest, most of them look like carbon copies.
When a trader makes profit on the platform, the broker loses money, and that creates conflict of interest. You should trade at a fair broker to skip withdrawal issues.
Most of the binary brokers claim that there’s no fee to register and no commission on trading. They even offer you free bonuses to start, so, where’s the catch? Many binary “Experts” spread all over the internet how easy it is to make money with binary options. If it is so easy for the trader to make profit, why are so many brokers in business?
If there are a lot of brokerages, that means being a broker is profitable. These are not charities, after all. The purpose of this article is to tell you how different types of binary brokers make their profit.
How binary brokers should work
First things first, the binary options industry is not an “ideal world”. Sorry to burst your bubble, but this industry is not free of scammers and people who are just hunting your money under the guise of being your friends.
Let’s assume for a minute that we are in an ideal world, where everything works as it should. In this world, there is no conflict of interest! I believe this is the main problem with binary options: If you and I profit, the broker suffers a loss. This obviously means that the broker doesn’t want you to win (unless they find some weird pleasure in losing money).
If there’s no conflict of interest, then the brokers will not try to delay your withdrawal, will not manipulate prices, will not pressure you into depositing more money, and won’t shove bonus after bonus down your throat. Basically, in a perfect trading world, this is how a brokerage should work:
Withdrawal time: maximum one hour for credit cards and e-wallets and maximum five working days for wire transfers. These deadlines should include processing time, which, by the way, is just a gimmick to delay your withdrawal until the broker’s salesmen call you to offer a bonus or to give you something special if you don’t withdraw.
Just in case you think one hour is too fast and it cannot be done, I assure you it can because my withdrawals to a credit card usually take less than 15 minutes. Not many binary brokers offer this speed, but it’s definitely doable.
Phone calls: maximum one call per year unless I ask them to call me for a specific reason. There is absolutely no need for my broker to call me unless I require assistance. That one phone call per year should be used only if something major changes in the structure of the company or in the company’s terms and conditions.
Bonuses: should be received only upon written request from the client. No matter the bonus percentage, it should not tie the client’s money to the platform (some brokerages block your deposited money from withdrawal until the bonus turnover is reached).
Price and Platform: Let them be! Don’t mess with the price just when my option is about to expire in the money. Don’t freeze the platform when I want to place a trade.
Account managers: should be there to assist me, not to trade for me. They definitely shouldn’t have access to my account!
There are other things that need to change as well, but even if brokers just changed what I’ve talked about, it would be a great improvement and would make the industry a safer place, ultimately attracting more clients.
We are still living in the real world of binary options, so let’s see how different types of brokers make their money.
How fair binary brokers make money
“Fair” brokerages want to make money (they’re businesses after all) but not at the cost of scamming people. They will not manipulate price or deny your withdrawals; they will not tie your money to the platform with huge bonuses. Okay, then how do they make money?
Simply, they let the market do its job. According to some statistics, only 10% of all binary traders are successful and make money in the market. Honestly, I don’t believe that statistic is accurate, but I do believe there are more people who lose money than people who make profit. That by itself means that a fair brokerage would still make money because they all act as betting houses, meaning that when you trade, you are going against them.
Also, we need to think about one other thing: when we win a trade, we are paid 70% to 85% profit on our money (on average). When we lose, we lose 100% of the investment made on that trade.
For example, if you trade 100 bucks and win, the brokerage has to pay you 70 bucks. If the next guy trades 100 bucks and loses, the brokerage takes it all, so it’s just made 100 bucks, which is more than enough to cover the $70 it has to pay you and still have a $30 profit.
All this means that even if the percentage of winners versus losers is 50/50, the brokerage still makes money. Since that’s not the case (because there are more losers than winners), evidently, a fair brokerage would still make money without stealing it.
How binary exchanges make profit
An exchange is the most legitimate venue you’ll find. A binary exchange makes money by charging a commission on your trades (spread, Bid/Ask difference). It’s the most transparent and honest way of making money, considering an exchange doesn’t operate like a betting house. That means that when you win, they don’t lose, and when you lose, they don’t win. No conflict of interest!
Is your money safe at a binary broker?
Whether your money is safe depends on what broker you have. Is it a fair broker or a scam? If your broker is a scam, you will probably discover that when it’s too late, but if your binary broker is fair and regulated by a major regulatory authority, then it is required to keep clients’ funds in segregated accounts. This means that your money is never in the same account as the broker’s, so if the broker goes bankrupt, you can still get your money.
The bottom line is that you play a major role in the safety of your money: if you do your homework and properly research a broker before investing any money, chances are that it will be safe.
If you get a phone call from a sales representative who tells you to deposit money into his unregulated, no-name, shady brokerage, promising you big profits every week, and you make a deposit, then your money’s not safe.