What do binary options brokers do?
Online trading is a modern day investment venture where investors can generate income without necessarily being subjected to strenuous documentation common with physical dealings. Binary options trading has especially gained ground since their inception in2008.Owing to the fact that binary options are trading online, access to an online trading platform is a primary necessity. A trader can access a trading platform by creating a trading account with a binary options broker. A binary options broker in this case is just but a company that provides a trader with a trading platform over which he/she can easily access financial securities. Although providing a trading platform is the primary role of a binary options broker, they also play a number of important roles. Today we have compiled an article detailing the functions or rather what is expected of a broker and how they make money. Without further ado, let’s address the elephant in the room.
Roles of a binary options broker
Provide the trading platform- binary options brokers act as a connection between traders and markets. This connection is usually in form of a trading platform. As mentioned earlier, brokers provide a trading platform on which traders can access assets to trade and the trading options. The trading platforms provided are either white labels or proprietary. Most Binary options trading platforms are completely online and in that case, no download is necessary. However, some brokers offer downloadable trading platforms such as the MetaTrader. With downloadable trading platforms, a trader must download and install in his/her personal computer. From experience, downloadable trading platforms come are easily customizable to fit a given trading style. For instance, Meta trader trading platforms are best known for their improved charting capabilities. Most brokers also offer mobile versions of their trading platforms. Usually, the mobile app has functionality matching the desktop platform. However, in some cases, functionality of the mobile platforms is limited to certain features of the trading platform. For instance, with some mobile apps, a trader can only place trades but cannot access banking services.
Provide a range of assets and options
Different traders have different trading styles and preferences. A trader may prefer trading commodities such as Gold and Silver while another trader may prefer trading forex. As such, a broker has to offer a vast selection of trading assets to suit different trading styles. As a matter of fact, most binary options brokers, if not all, offer an asset’s list which cuts across the four main markets. A binary options trader can trade currencies, stocks, stock indices and commodities without having to switch platforms. A binary options broker also provides trading options. Trading options at a trader’s disposal is subject to change from one broker to another. The most common trading options offered by most brokers is the Call/Put. To trade this option, a trader has to predict whether the price of the underlying asset will rise or fall within a set trading duration. A trader buys the call option if he predicts a hike in the market price of the asst in question to rise and buys Put options to predict a fall in the market price of an asset. Other trading options offered include, Touch/No Touch, Boundary, Tunnel, Ladder, and High/Low options among others. Some brokers may also offer special trading options such as Turbo, Option Builder, Long Term and 60 seconds. The option builder option allows a trader to customize his own trading option from scratch. Apart from offering assets and trading options, a binary options broker has to also provide expiry durations. Expiry durations define the lengths of trading contracts and they can be long term, medium term or short term.
Offer banking services
To start trading, you obviously have to somehow deposit money to a trading account. Another important role of a binary options broker is to offer banking services. That is, the broker has to provide platforms over which traders can securely deposit money in their trading accounts as well as facilitate withdrawals. Although most brokers offer a wide variety of payment methods, it is worth noting that banking varies from one broker to another. For instance, one broker can accept deposits from a specific online wallet only to find another broker not accepting deposits from the same online wallet. That being said, it is important to check payment methods supported by a broker to avoid future inconveniences.
Basically, binary options brokers have integrated payment processors which accept a wide range of credit and debit cards from different providers such as MasterCard, Diners and Visa just to mention a few. Additionally, some brokers also accept deposits from a number of online wallets including Neteller, Skrill and WebMoney.
Provide educational materials and customer support
Financial markets change frequently depending on the underlying conditions and the only way a trader has to have access to market information to stand a chance in trading. Most binary options brokers provide traders with access to a wealth of education resources. One of the most common and probably the most useful education resource is demo trading.A demo platform allows a trader to hone his/her trading skills without exposing his hard earned money to trading risks. Demo trading is only achieved with virtual money and neither profits nor losses are transferrable to a live trading account. Other educational materials offered by binary options brokers include trading videos, articles on binary options trading basics, webinars, market reviews, news articles and assets index. Some brokers even offer access to account managers and free trading signals for traders with VIP status.
Binary options brokers also offer customer support. Although availability of customer support varies from one broker to another, most brokers offer support round the clock. Interactive customer support is offered via live chat. Customer support can also be achieved via phone or email. To attract a diverse clientele, some brokers offer multilingual customer support and their websites may be translated into multiple languages.
How do binary options brokers make money?
Obviously, binary options brokers don’t run a charity and hence they have to make money in one way or another. Interestingly, most binary options brokers don’t charge commissions on won trades (a culture common with forex brokers) but they somehow make enough money to sustain their day-to-day activities. Well, below are some of the ways with which binary options brokers line their banks.
Your losses, their gain-Where do you think your investment goes after you lose a trade? it is not rocket science, or is it? Well, let me spell it out for you. The amount you lose in trading ends up with the broker and the broker pays your payouts in case you win a trade. Meaning, if all traders trading on a platform are to place winning trades, the broker will definitely make a loss at the end of the day(although it is highly unlikely).The opposite happens if all traders are to make wrong predictions which is also highly unlikely. Therefore, the broker makes leverages on the differences between payouts and losses. For instance, if let’s say 1000 trades end in the money with a cumulative payout of $10k,the broker can only make a profit if traders make losses above $10k.Otherwise, the broker will make a loss.
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An online broker plays a huge role especially in binary options trading. That’s why we always emphasize on the need of carefully evaluating a broker before committing financially. The truth is there are tons of scam brokers in existence today and unless you do your due diligence ,there is a chance of signing up with a rogue broker and trust me, you don’t want that. A reputable binary options broker should prioritize the security of their banking process by using state-of the art encryptions and thereby shielding their traders from Man-in-the-middle attacks. In addition, a good broker should offer an easy to use trading platform which does not require prior trading knowledge. If possible, a binary options broker should also offer a demo platform using live trading data. Traders should also have access to a wide range of assets from which they can easily select the preferred ‘underlying’ asset. Finally, a broker is supposed to offer exemplary customer support. Preferably, customer support should be available 24/7 and should be in different languages.