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.
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.
Now that you have learned how the binary options brokers make money, it does not mean that all of them are legitimate.Find the best brokers and trade only with them.