How Do Binary Option Brokers Make Money

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How Do Binary Options Brokers Make Money?

Over recent years, binary options trading has become an accepted form of investment in the financial markets. Unlike the forex market or stock market where the brokers charge spreads or commissions, binary options brokers don’t work in this way. This often raises the question of “How do Binary Option brokers make money?” It’s obvious that binary options brokers are making money, otherwise they would have stopped functioning a long time ago. The question is how and the answer is seemingly shrouded in mystery.

Binary options brokers actually make money through a variety of ways. However, the precise method is dependent on the business model of the broker. One way of making money is through the pricing of the binary options. Another way is through the trading activities of traders.

Pricing Of the Binary Options

Binary options broker normally obtain their pricing structures from their liquidity providers. What many traders are unaware is the fact that the pricing of the binary options that they are trading in is marked up slightly from those in the market. When we want to trade in binary options, we check out the prices of the asset displayed on the trading platform together with the expected payout in dollars and cents. If we pay closer attention, the expected payout is not calculated based on a true percentage payout. A certain portion of the payout is actually retained by the broker and this is the commission that the binary options broker is earning.

Another way for binary options broker to make money is through the trading activities of their clients. Let us suppose that Acme Binary Options broker has 500 clients. Let us further assume that 250 of these clients wish to bet that the GBP/USD will go up within the hour and they bet $100 each. The other 250 clients want to bet $100 each that the GBP/USD will fall within the hour. This mean the total money pooled in the market is $50,000. On the trading Platform, the GBP/USD displayed a paid out ratio of 80% if the trade is in the money.

After an hour, we find that the GBP/USD actually ended up. So the 250 of traders that bet for the GBP/USD to rise ended up in the money with $180 each. For those traders who ended out of the money, their return is zero. Hence, the total payout comes to $45,000. This mean there is a balance of $5000 in the market pool which the broker can walk away with. Our example is just based on one trade of the GBP/USD in one hour. Just imagine that there are 10 to 20 such trades every 24 hours, this mean the broker is easily earning $50,000 to $100,000 per day! If we take that amount and multiply it 5 times a week for four weeks, we ended up with a figure ranging from $1 million to 2 million in a month!

Of course our example above also presupposed that there is a balance between both sides of the market which is unrealistic in the real world. Nevertheless, the example is able to illustrate to us very clearly how binary options brokers makes their money.

How do Binary Options Brokers Make Money? It is simple!

Though it may not be a secret anymore, but many people often misunderstand how binary option brokers make money! There are many investors who are afraid to trade with binary options because they think that the brokers make their money by exploiting their funds.

However the reality is far from that. (Although,there are some scams out there).

This article will focus on the simple technique used by brokerage companies to earn money. Being aware of this technique can help you become more confident as a trader. So, let’s begin!

Unlike the stock market or forex trading, the brokers do not charge any form of commissions on the trade that you place.

However, it is obvious that they are making their money some way. Otherwise they would have never survived in the market.

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Where does the money come from in binary options

“The broker makes money when the client loses it”. But does this mean that the broker wants you to lose in order to make money?

Not exactly. It does not have to.

The broker has to get its own share after a plethora of traders who made millions trades. In this perspective, the broker remains indifferent to a single trader’s win or loss. It gets the money because the win is less, compared to another trade’s loss. I made it a bit simpler than reality just to get the main idea.

In addition, a report from a binary options broker shows that 85% of traders lose their money.

That means that it is very profitable to be a binary options broker. And risky to be a trader.

But there is still 15% of traders, who manage to take money from the broker.

Unrealistic Example of how binary brokers make money

Let’s say that a binary options broker has 2000 customers. The 1000 of them bet that the EUR/GBP will go up and they bet $1 each. The other 1000 customers bet $1 each that the EUR/GBP will go down. The broker has got $2000 so far. The return is ,let’s say, 85%.

Let’s assume that the Eur went up. The first 1000 traders won $1.85 each, $1850 all of them.

The other 1000 traders who lost the bet get nothing. Thus,the broker ends with $150 in his pocket.

The main key is that the return percentage is,of course, never above %90. And it is always calculated by the brokers to be under the percentage that would made them lose money.

The Business Model of Binary Options Broker

The business model of binary brokers and stock market is not exactly the same. The answer to how binary option broker make their money lies in the difference between profits that you earn and the loss that traders make or the vice versa.

Basically, “good” regulated binary options brokers never use any illegitimate way to earn money and you can surely get profitable returns from them. On the contrary, there are certain brokers that aim for sustainable business and for this they have to be 100% legal.

Many people wonder how to become a binary options broker. Money,staff,money and money is what you need.It is for them that already have the money. You could have a broker company with less money but you could never compete the hundreds of brokers out there.

The important thing is to understand what makes successful traders different from those who lose.

How do binary options traders make money?

To be like the successful and rich traders, you have to make a note of the techniques that brokers implement for earning money.

Traders think that it is only about exceeding broker through risk. They try new and promising strategies that will give them an edge over the broker.

But,the eye-opener here is that you are not trading against the broker or financial institutions. It switches from one person to another- just like financial transactions. So, the idea is not to exceed the bank but other fellow traders who are part of the same race.

Can you make money in binary trading?

The use of full-proof strategies is not the only way you can achieve it.Instead discover the scenario where you as an individual trader can earn money. Then make the most of this scenario in particular.

There is absolutely no secret, no trick or no strategy to this. You have to understand that and make your move accordingly.

How Binary Options Brokers Make Money

There are several ways that a binary options broker can make money from the traders’ investment. Legitimate brokers make money by marking up the price of the asset on the trading platform. Usually, the pricing structure of the different types of assets are derived from the liquidity provider. The asset’s price has been marked up to be slightly higher than the original market.

In-the-Money Trades

Binary options brokers actually make money on both in-the-money trades and out-of-money trades. For in-the-money trades, they earn a portion of the profits when you make the right prediction and win in the trade. The payout ratio displayed on the platform is not calculated based on the actual percentage on the original market so that is how the broker profit on a portion of your payout.

Out-of-Money Trades

For out-of-money trades, the broker profits on your capital investment plus the payout rate when you make the wrong prediction. For example, if the payout rate is 85% and you place a trade of $100 on the USD/EUR currency. You predict that it will go up but the result end up that the USD/EUR currency go down.

You lose your capital investment and didn’t get any return. In this case, total amount that broker earn will be $185 including your capital investment plus the payout rate of 85%. Everyday, there may be 10 or more out-of-money trades so the broker can easily earn tens of thousands or hundreds of thousands of dollars per day. There are some brokers that offer refunds for out-of-money trades, which is usually 5% – 15% of your initial investment.

If most of the traders are winning, the broker would be losing money and close down. In truth, the majority of the trades will be losing trades for most of the time so this makes a lucrative business for binary options brokers. A survey report that was released in Japan revealed that 85% of the trader lose in their trading. Most traders are not able attain a high winning rate because they lack the patience to learn about trading binary options. Those who do spend time to educate themselves such as reading guides, watching video tutorials and attend webinar will learn how to earn a consistent income over a long term. Therefore, it is all up to you on whether you will make money or lose money binary options trading.

How Peer 2 Peer Brokers Make Money

Some brokers operate on a peer 2 peer network which allows traders to trade against one another. In peer 2 peer network, clients can create options with different types of payouts and the buyers will decide how much they want to invest and place the trade within a single click. If the buyer predict the price movement incorrectly, the seller will profit.

The broker does not profit on the out-of-money trade but they make money by charging a commission whenever the trader purchase a contract. The commission ranges from ten dollars to twenty dollars. This means that the seller won’t earn the full amount on out-of-money trade because the commission will be deducted from here. Hence, both the traditional and the peer 2 peer model are the same because the brokers will end up making the same range of income.

Welcome Bonus

Another way binary options brokers make money is by offering bonus that match with their deposits. They advertise the bonus as an incentive to help new traders to get started in the trading. New traders often get tricked and assume that they will be able to withdraw the bonus from their account. There is a string attached to the bonus, and that is you need to fulfill a certain amount of trading volumes, for example your trading volume must be 30 times of the bonus, before you can withdraw them from your account. The minimum trading volume you must reach is stated in the terms and conditions .

Illegitimate Brokers

An illegitimate broker will attempt to cheat your money in many ways for example charging your credit card for hidden fees you don’t know. This is why it is important to only trade with broker that is transparent about all their fees and lay them out upfront on the trading platform. Scam brokers will find all sorts of excuse to lock the funds in your account so that you won’t be able to withdraw the funds.

It is possible for you to consistently win in your binary options trades if you are patient and willing to spend time to learn all about it. As a rule of thumb, you should only trade with a legitimate broker that is equipped with proper licensing to avoid situation where they try to cheat your money by preventing you from making a withdrawal.

Best Binary Options Brokers 2020:
  • BINARIUM
    BINARIUM

    Top Binary Options Broker 2020!
    Best For Beginners!
    Free Trading Education!
    Free Demo Account!
    Get Your Sign-Up Bonus Now:

  • BINOMO
    BINOMO

    Only For Experienced Traders.

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