Binary options make money from simple mathematics and most reputable brokers do not manipulate the market or expiry times in order to push close trades out of the money. It is no secret, but it is often misunderstood, How a Binary Options Broker Makes Money. The simple answer is, when a trader loses money, the broker keeps it. And this is the reason binary options brokers do not have to charge a commission or a fee per trade.
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.
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(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? 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.
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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%.
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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.
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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.