How do Binary Options Brokers Make Money
To start trading in binary options you simply need to visit your chosen broker’s site and open an account; a process which should take less than five minutes. You will then need to add funds to your account before you can actually start trading although you may gain access to the demo facilities in the meantime.
Actually trading at its basic level involves choosing an asset and deciding which direction its price will move in. You then purchase your trade and wait until the designated expiry time. If the price has moved as you suggested you will receive your funds plus an agreed pay out; usually round the 80%. If you fail then you simply lose your funds. There are no commission charges which may lead you to question how binary options brokers make money.
The answer is both simple and complicated. When you lose a trade the binary options brokers make money, how? By keeping your investment! Assuming that more trades are won by the broker than by all the traders then the broker will end up in a profit. This is how binary options brokers make money!
However, if you assume that fifty percent of traders decide the price is going in one direction and fifty decide the other, then, as long as the payout rate is less than 100% the broker can make money from all the traders as a group, but, if sixty percent are right it is likely the trader will break even or even make a loss! To avoid this scenario without fixing trades a binary broker will seek to offer as many different trades as possible and attract as many different clients as possible. This will almost guarantee the trades will fall in the brokers favor overall; simply by the fact they are slightly weighted towards the broker. Of course, there is no guarantee and some brokers have failed to make a success of their business. This is why it is important to look at the experience and track record of any broker.
