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Published on March 12th, 2019 | by John Kane

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How Do Binary Options Brokers Earn Money?

BINARY OPTIONS BROKERS ARE IN BUSINESS TO PROVIDE A WIN-WIN SERVICE: THEY INTEND TO MAKE A PROFIT FOR THEMSELVES AND WELL AS PROVIDE AN OPPORTUNITY FOR THEIR CUSTOMERS TO MAKE A PROFIT AS WELL. BUT HOW DO THEY MAKE MONEY IF THEY DON’T CHARGE A COMMISSION?

Binary Options Broker Cut

The main way brokers make money is by taking a cut off of each trade. Even in wins, if they offer only 70% payout on that pair, they will get a 30% cut. In essence, the broker pockets the difference between the percentage losing trades lose and the percentage winning trades make.

Specific Example

To make this clear, let’s look at a simplified example: Suppose a broker has 100 clients. About half the time they buy calls and half the time they buy puts. Upon expiry, about half the traders will receive a payout of generally around 80% (of course this percentage will vary with each trade). The other half will lose all their investment. Assume also each trader places a $100 investment in each trade. Now let’s do the math: Fifty times $75 = $3750. This is the payout the broker needs to pay out to the winners. Fifty times $100 = $5000. This is the amount the broker keeps from the losers. The net profit for the broker is $1250.

Current Recommend Brokers

There are currently a handful of brokers we recommend. It’s also worth noting that all of our recommendations for binary options software, can be traded with Forex brokers via MT4 as well.

Conclusion

Of course, the real world is never that simple. The percentage of puts versus call bought by brokerage clients is never exactly 50/50 and the fixed payout offered will vary. Statistically, however, the broker makes a near riskless profit by offering a fixed percentage of less than 100% to the winners. Keep in mind that it is in the broker’s best interest to have a large and active customer base.

More trades correlate directly with more profits for the option broker. In addition to pocketing the difference described above, brokers derive some revenue by earning interest on the deposits their customers make into their accounts. They also commonly charge miscellaneous fees, such as withdrawal fees or managed account fees to garner additional income streams for their business.

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About the Author

I am a full time binary options trader. I was able to leave my job in the last 5 years and dedicate myself to trading fully. I never thought my hobby and passion would make a living for me but I am grateful every day that it has. My main goal now is to communicate with the binary trading community, contribute to different websites and learn from other traders.

Disclaimer: Binary Today would like to remind you that the content contained in this website is not necessarily real-time nor accurate. Past performance does not guarantee future performance, the above is not indicative and is purely for educational purposes only. Relying on the above for investment, trading or betting in binary options or Forex is not advised unless done so with virtual money only.

Binary Today or anyone involved with Binary Today will not accept any liability for loss or damage as a result of reliance on the information including reviews, recommendations, charts, software, income reports and signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.


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