If you thought all binary options brokers earn a lot of money, you are mistaken; just like there are all kinds of traders on financial markets, there are all sorts of brokers (Forex, bitcoin, investment banks etc.) as well. Don’t be mislead: there are some really successful brokers, but they have their own tips and tricks that helped them make it in the game. But the ways for a binary options broker to earn his paycheck are many. The fact is, many Forex and even stock brokers offer binary options on the side, and even dedicated binary options brokers can dabble in other areas as well.
How a binary options broker makes cash?
Unlike regular brokers, who make their money on commissions, or spread as some call it, binary options brokers have to resort to various methods in accordance with their business plan. Most binary options brokers choose the business model which lets them profit straight from the market, based on the number of trades they execute on the behalf of their clients. Most binary options brokers only offer a limited choice of binary options; why do you think is so? Does it get harder to compute a few extra binary options? No, not in this day and age, and certainly not for a professional. But if a choice is limited, and a lot of clients choose to bet on a popular binary option, like a currency pair, some will invest one way, and the others will bet on the opposite outcome. A broker can use the money from those who lost to pay those who won and keep the rest. That is why everyone pay premiums in advance; so that broker would have something to redistribute. Those who won get their money back, and “return” comes from those who lost. Provided he did not miscalculate the return, and if the platform is successful, even moderately successful brokers should easily make $100,000 a day, or more. Basically, if you have 500 clients betting on the same binary option, and one side is usually much more invested, there are two outcomes: if the more likely outcome turns out to be true, the money from the losing side should easily cover the return and vice versa; either way, there should be plenty left for the middleman. But don’t get cocky; there is always room for error. One miscalculation and you’ll have to cover the difference out of your own pocket. Then again, some brokers are frauds and the way they make their money is something else altogether, but this text is not about them.
Regular brokers make money by adding their commissions into their clients’ business expenses. Binary options brokers redistribute the funds and keep the remainder. Both ways are legal, but it is up to you to decide which one suits you best. Neither gamble with their own money, if it can be helped. That’s what clients are for.