This is the ultimate and the foremost question which is asked by the many traders who are unsure how traders and brokers can ensure their profits keep coming while being in a mutual business partnership. Binary Options market works differently than the forex and stock market because here the brokers do not charge you a spread or commission to trade, rather they make money in different ways. Here we will talk about two just ways.
In the first one, the brokers take away the money invested by the traders in trades which they lose. The second method is by charging a commission on a contract purchased by the broker usually through a binary options exchange model.
Taking away the capital invested in lost trades
You might already be aware of the functioning of binary options market; you make an investment in a certain asset, then you have to predict the future price movements of that asset. If you predict correctly, you receive back your initial investment along with a certain percentage as profit. However, if your prediction is wrong then you lose your initial money as well. All of your investment money goes to the broker and this how the broker will generate profits over the long run.
This raises a couple of questions. Firstly, what if all the predictions go right and no traders lose money? Our answer to this is that such a condition will be unrealistic. Not because trading itself is so difficult but because most of the traders do not have the patience and enough knowledge to make clever decisions. They are either too hasty to win, to overexcited by their previous wins or too dull to predict the future market conditions.
Secondly, if this is the case, then how can anybody trust this field? Right knowledge, experience, commitment, control on emotions and patience can turn anybody into a successful trader. It only depends on the person’s will. This is precisely the reason why we provide you expert knowledge on our website to enhance your trading experience and to ensure your healthy future in this field.
Charging commission on contract purchased by broker
In this method the brokers charge commission on any contracts which they purchase for their clients. Under this system, they also work on a binary options exchange model. Through this model, brokers allow traders to bet against each other. The trader who loses the bet loses his money to the winning trader.
Although the money is transferred between the traders, but the difference is that when the contract is placed by the trader, the broker will charge its commission in order to generate the money. This commission mainly depends on the amount of money capitalized on a contract but it can be anything between $10 and $20.
In this way, whoever loses or wins the bets, the broker is safe with his profit. The winning trader however does not receive the full amount as invested by the investor because of the commission of the broker.
So now it must be clear to you how binary options brokers make money. In both of the methods mentioned above, the losing trader will lose his initial investment money. The only difference between the two models is that, in the first model the money lost by the trader is cashed by the broker and in the second case the money goes to the trader who wins the bet.
Lastly, it is highly recommended you choose your brokers wisely. Look for reliable, safe and fair services to avoid any scam and fraud.