How do Binary Options Brokers Make Money?
There are basically two ways how a binary options broker make money. The first way is to take away the money invested by traders on lost trades. The second is to charge a commission on a contract purchased by the broker.
In both cases the losing trader will lose the initial investment. The two ways differ from each other from the fact that the money lost will be cashed in by either the broker itself or by another trader in case the broker functions on an exchange-trading model.
By cashing in money placed on losing trades
You most likely already know that in binary options you make money by correctly predicting the future movement of an underlying asset. If you correctly predict the movement of an asset, then you will receive back the initial investment plus a certain percentage of the initial investment.
If, however, you lose then you will lose your initial investment amount. At most binary options brokers this money will go directly to the broker. This is how the broker generates profits over the long turn.
Bu now you might be asking what would happen if all traders would win? – The answer is that if all traders would win, the broker would go bankrupt. However, this will never happen because most traders are losing traders.
Most traders aren’t losing traders because trading financial assets is difficult but because they don’t have the patience enough to learn to properly trade binary options. However, those who do will always manage to generate consistent winnings over the long term. Always. By reading these lines and being on this website you’ll have the chance to become a winning trader yourself. You just have to have the patience to go though all the guides and strategy articles we’ll offer you on our web page.
So, in most cases brokers make money because the number of traders who lose will always be somewhat lager than the number of traders who win. This difference is really small however but enough to make sure the broker will be able to generate profits.
It’s a choice to be a winning trader or a losing trader. It all depends on you really.
By charging a commission and working on an exchange model
Another way for the broker to make money is though charging a commission on all contracts purchased and by operating on a binary options exchange model. In binary options exchange trading brokers allow traders to bet against each other. This means that the money lost by one trader will go to another trader.
In other words, the money lost by a trader will never go to the broker. However, in order to generate money, the broker will charge a commission on the contract purchased by the traders. Usually this commission can be anything between $10 or $20 but it largely depends on the amount invested on a contract.
This however does not mean that in case of a losing trade traders will not lose the invested money. In case of a losing trade, the invested cash will go to the winning trader. The winning trader will not receive the full amount lost by the other trader because of the commission.
So, from a trader’s end it does not make a difference at all how binary options brokers make profits. Both models look exactly the same from the trader’s end. The only difference is the way the broker will make money. However, in both cases the broker will make approximately the same amount of income.
Which Type of Brokers are More Advantageous?
Some traders believe that binary options exchanges are safer than traditional financial trading brokers. This is because in exchange trading the broker will not take the money lost by traders to itself. In other words, the broker is not interested in the trader losing because it makes no difference since it will get the commission anyway.
However, this isn’t necessarily true because most brokers operating on the market today are regulated and supervised by various government and state agencies. As such, no abuse of any kind will take place since otherwise the government would shut the broker down.
So, from a trader’s end it doesn’t really matters how binary options brokers make profits. The same rules will apply in both cases, namely that when traders win a contract they will make profits and of they lose a contract they will lose the initial investment.
Register at the best brokers
In order to make it easy for you to choose the brokers that are the safest and most sincere in the business we created the toplists present on our website. All of the brokers listed here operate inside of the law meaning that no matter how they make money they always offer fair and reliable services.
In order to become a winning trader you should also check out our additional strategy and educational articles on our website. As explained, most traders lose because they are lazy to learn how to trade properly. However, you can make sure to always generate profits. – Check out our guides now.