.Binary options is not a form of gambling. Over the years it has become a recognized type of investment on the global markets.
It is easy for rudimentary educated on the subject to presume binary options brokers as stock brokers. However this is not the case.
In the stock market, brokers make their money by charging a commission or spread.
The answer on how binary options brokers make money however is a little less apparent.
Simply put, there are two main methods by which binary options brokers make their money.
One is by pricing certain binary options and the other is through the trading activities by investors.
Although the fact is there are a greater number of ways in which a broker can make money but those are subjective to individual business models. With binary options, your broker is either honest or a crook. First, let’s take a look at the two main methods employed by brokers to make money with binary options.
Pricing the binary options
The pricing of binary options that investors are trading in is marked slightly higher than the rates in the market.
This is something that many traders are unaware of. And the brokers usually obtain pricing estimates from liquidity providers.
When making a trade, investors refer to the figures mentioned in the software or trading platform and the estimated payout. However, a certain part of that payout is actually taken out by the brokers which would serve as the commission they are earning.
Trading activities
A binary options trader can also make money through their clients’ trades in binary options.
Through various loopholes that come up with binary options trades, some money from the payout can end up in no man’s land.
These funds by default are taken over by the broker. For instance, if a certain amount of clients make a series of options on a market and end up out the money, their investment falls exclusively into the hands of the broker.
However, in order to maintain trust and a good performance record, brokers will still do what they can to make their clients’ investments a success.
There simply aren’t any guarantees. Depending on the number of clients, a broker could be making millions a dollars a month on the binary options market.
With only two possible outcomes that come with binary options come two types of brokers: the honest and the dishonest.
Honest Brokers
An honest broker is quite simply considered one that is regulated and licensed.
A binary options broker makes money off of the amount of trades that are being executed by the traders.
As long as there is a binary options trading industry where at least some traders walk away having made a profit, there are bound to be some competent and honest brokers around as well.
Dishonest brokers
There are a few ways however, that brokers will use to scheme against traders swing the money in their direction.
The highly infamous method is when a broker tricks their client into believing they are legitimate. After that they acquire permission to trade with their money.
They then rig the software to yield the result most favorable for them, regardless of whether the clients end up in the money or out the money.
Scams are very ugly. It is best to do your research, give it your best judgment and carefully chose a broker to handle your trades in binary options.
But as a broker, money making opportunities are plenty. Unsportsmanlike conduct is detrimental in the long run. Stick to being legitimate.