Where does money come from in Binary Options?

Where do binary options brokers get money to pay out their clients' profitable contracts? The activities of such companies cannot be called charity. The scheme by which they work has no secrets. To better understand it, you should familiarize yourself with the operating principles of the binary options market itself. This will also allow you to choose the most suitable strategy for your trading to make maximum profits.

Concept of binary options

Binary options are a financial instrument that has no independent value. When buying a binary option, a trader makes a bet on which way the price of the asset being traded will change. Each contract has certain conditions, upon fulfillment of which it will be considered winning. As a result, the trader’s account is credited with a certain amount of funds equal to a predetermined percentage of the option value. If the conditions are not met, the contract is considered unprofitable and funds are not returned.

The differences between Forex and binary options brokers are not significant, since all of these organizations are only intermediaries and operate according to an internal clearing scheme. If your broker claims that every position opened by traders is hedged on the stock exchange or that all trades are carried out between traders, then he is blatantly lying.

If a binary options broker really brings transactions to the real market, then he can always prove it. If, when you contact a broker, he cannot show you the details of the withdrawal of your transactions, then you cannot take his word for it. It is especially popular to talk about bringing transactions to the exchange with Forex brokers, as this attracts traders. But if there are brokers who actually zedge transactions, then there are only a few of them and advertisements about them are not plastered everywhere.

Trader's profit

It is no longer a secret to anyone that unsystematic trading of binary options inevitably leads to loss of money. Trading “at random”, you will not be able to increase your deposit over a long period of time. In this case, the amount of money lost will be directly proportional to the duration of the trade.

The mathematical expectation of all options is negative due to the fact that potential losses always exceed the payout on a profitable contract. On average, the return on options for most brokers is 70%. If the asset price goes against you, then you will lose 100%.

If you want your deposit to increase, then you need to make much more profitable trades than unprofitable ones. This can only be achieved if there is a stable strategy that is based on long-term patterns. It would not be amiss to adapt it specifically to the BO market.

Broker's profit

Brokers, just like traders, need to develop trading strategies . They are based on statistical patterns. In particular, an analysis is carried out of the number of successful traders and those who regularly drain their deposits . Some of the broker's clients will be able to earn money while maintaining the company's statistical advantage without violation. This is done by changing the percentage of payments under contracts.

We have already said earlier that opening transactions randomly leads to the loss of the deposit. Statistics show that most traders trade this way. Therefore, the broker is always in the black.

At first glance, everything seems quite simple. But such a strategy is not without its drawbacks. Today, there are several strategies with which a trader can be guaranteed to beat a broker. One such strategy is news trading. To avoid losing money, the broker introduces a number of trading restrictions. Otherwise he will lose money. Simply put, a trader's primary goal is to beat the broker's statistical advantage by using the market as an instrument. One of the fundamental conditions for winning over a broker is to have a high-quality strategy that will allow profitable trades to outnumber unprofitable ones.

Conclusion

We managed to find out that binary options brokers get their money thanks to the traders themselves. These companies make profits from the sale of contracts. They constantly have a statistical advantage over the trader. But it can be defeated with a proven strategy. Therefore, you should not make premature conclusions. Every step you take must be thoughtful, and before using a strategy in a real market, it is recommended to test it thoroughly.

See also: How do binary options brokers make money?