Today binary options trade has become one of the accepted forms of market investments in the financial markets. However, the brokerage in this kind of trading is not obtained in the manner which is prevalent in the forex or stock market. The process by which the binary options brokers make money is distinct and definitely as profitable as the other forms of trading transactions. So how exactly do these binary options brokers make their money?
How Binary Options Are Priced
The business models are distinct, based on which the brokerage services offer binary options trade to customers. The method followed by a broker will determine his or her payment method.
The pricing of the binary options is one of the ways the brokers can earn money as well as through the different trading activities that are opted for by the traders. When it comes to pricing the binary options trading instruments, that is where the money is made by the brokers. Most traders are unable to understand the way the brokerage include their fees in the pricing of the options.
When it comes to trading, the traders usually find the prices of the assets that are displayed on the trading platform.
The expected payout that is for each asset is usually mentioned as cents or dollars. The expected payout is not a percentage payout in the true sense. This reflects the portion that is retained by the brokerage service as their commission. Some trading platforms have high or low expected payout. This needs to be calculated and compared against other trading sites. The lucrativeness of trading on one platform vis a vis another is determined by the percentage payout that is offered.
Again, the final payout percentage might be low even if the average value is shown to be high. The lucrative platforms are those which offer higher payouts on average as that shows the competitiveness of the sites. Most new sites at the time of launch, have higher payout percentages in order to lure more traders to the platform. Hence, in these sites the commission charged by the broker is kept low in order to induce more volumes of trade on the site which can guarantee greater earnings for the trader in the long run.
Earnings Through Trading Activities
There is another way that brokers can earn money through the trading platform they run. This is through the trading activities of the different customers. For instance, if a binary options trading brokerage service has a total of five hundred clients, the volume of clients who are trading actively will affect the earnings of the broker.
When half of the clients trade hundred dollars on a forex instrument’s value going up while another set trades on the value going down, there is a total of fifty thousand dollars that is pooled in for the binary option.
If the paid out ratio is eighty percent, those who have won the bet will end up with $180 each while those who lose out, their return is zero and out of the total amount paid, there is an excess of five thousand dollars that is pocketed by the broker. This is an example of how the binary trades work. There are thousands of trading activities that take place, some within a time span of sixty seconds even. Hence, the earnings from each trading activity becomes larger with the increasing number of traders who participate in the trades.
Again, the earnings also vary as per the accuracy of predictions by the traders. Those who are experienced are usually able to predict the right movement of the underlying asset prices in an options purchase. However, on the whole, there is much to earn from the fallacies of traders and by reducing the percentage of payouts.
Sign Up Amounts
Every binary options trading platform needs a certain minimum amount to be paid or deposited in order to start using the service. The whole amount might not be used. The money that is deposited by the users is available for usage by the brokerage service though they are committed to provide the payouts within a certain time line.
In most cases the payouts are processed at a certain time of the week and take a certain number of days to reflect in the customer’s account. The time lag in these cases allows the brokers sufficient time to utilize the funds of the customers in payouts and other ways.
Bonuses And Other Features
The lucrative brokerage services in binary options trading allow the customers several ways to spend on or to gain bonuses while trading on the platform. From welcome bonuses to variable payout percentages, there are several freebies and incentives that are offered by the different brokerage services from time to time in order to retain the existing clients and to woo new customers.