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Since binary options have become the hottest new trading trend, binary brokers are in high demand. But what exactly do binary brokers do and how can you find a good broker? In our guide to binary brokers, we will answer these questions and more.
In detail, we will answer these questions:
With the answers to these questions, you will know everything about binary brokers, whether you should sign up with a binary broker, and where to find the ideal broker for you.
Binary brokers are brokers that enable you to buy binary options. Binary options are a new form of assets, with which you can make simple yet highly profitable predictions about an asset’s price. In their simplest form, binary options allow you to predict whether an asset’s price will rise or fall over a given period of time.
Binary brokers are brokers that offer predictions in which you can invest. Each binary option is a prediction about what will happen to the price of an asset, and your broker decides which predictions you can trade and which payouts you get for each prediction if you are right.
There are two basic types of binary brokers:
Let’s take a closer look at these two types of brokers.
Most binary brokers offer their binary options directly to you. The broker defines which predictions it is willing to offer to you and which payout it offers for each prediction; you decide which combination of prediction and payout you accept.
In this system, you trade directly with your broker. Some traders see this direct involvement of your broker as a conflict of interest. In order for your broker to make money, you have to lose money. If you make money, your broker loses it.
Of course, a broker is indifferent to whether or not an individual trader makes money. The broker wants to make more money from the traders that lose money than it has to pay to the traders that make money, and it is fine. In this way, you are not trading against your broker, you are trading against all other traders, just like with a stock broker – for one trader to make money another trader has to lose money.
It is definitely possible to make money with brokers that offer binary options directly to you. This is a good thing as most binary brokers follow this business model. In fact, there is only one broker that does things differently. For U.S. traders, this broker is the broker they should sign up with.
In the United States, the government has passed a law that forbids brokers from offering their binary options directly to traders. As a result, one of the few U.S. based binary options exchange, Nadex, has created a new interesting business model.
Nadex works in the same way as a stock exchange. Stock exchanges do not trade stocks for themselves; they simply connect traders. When one trader wants to sell, and another wants to buy, the exchange brings both of them together and helps them make a deal that is in the best interest of both parties. The stock broker gets a small fee for every trade, which guarantees that the broker remains impartial and has no reason to stack the odds against traders. Nadex adapts this system to binary options.
Nadex connects traders. When one trade wants to invest in rising prices, Nadex connects them to another trader that wants to invest in falling prices. Both traders trade against each other, and Nadex gets a small cut.
One of the most significant advantages is that Nadex offers an average payout of at least 91 percent, which is significantly higher than all other brokers. Other brokers offer an average of around 80 percent, effectively charging a $20 fee for every $100 you invest.
Considering the power of compound interest and the fact that you can reinvest your profits, any trader should quickly understand how special Nadex’ business model is.
For American traders, this is an easy decision: Nadex is one of the few who is legally allowed to offer binary options to U.S. citizens. Any broker that is willing to accept U.S. traders without the permission of the government does so illegally and should not be trusted.
Traders from all other parts of the world can decide for themselves which type of broker they want to use. We recommend trying both alternatives and sticking with the one you like best. For more on how to try brokers risk-free, keep reading and focus on our section on demo accounts.
Many newcomers find it difficult to tell whether or not they can trust binary brokers. Luckily, there is an easy way to separate the trustworthy brokers from those that you should stay away from. This way is government regulation.
The European Union and the United States both have created regulatory agencies that monitor financial institutes. Binary brokers that accept regulation from either authority have to abide by the same standards as the big banks, which guarantees you that your money is completely safe.
The most significant difference between regulated and unregulated brokers is how these brokers handle your money. Unregulated brokers can throw your money, the money of other customers, and their own money in one big pot. This system is dangerous, because if the broker should have to file for bankruptcy, you might lose all your money – there simply is nothing left in the broker’s account that you could withdraw.
To prevent such a horror scenario, the EU and the U.S. both require binary brokers to keep their customer’s money in a separate account. Even if the broker should have to file for bankruptcy, this system protects your money.
Of course, government regulation has more security advantages.
All in all, the easiest way to find a trustworthy broker is to choose a broker that is regulated by the United States or by the European Union. Watch for the seals of the CySEC, the Cyprian Securities and Exchange Commission, that regulates most European brokers and the CFTC, the Commodity Futures Trading Commission, that regulates U.S. brokers.
Make sure to pick a broker that is regulated by the European Union or the United States, and you will have a trustworthy broker by your side.
Finding a trustworthy broker is only one part of the job. The other part is making sure that your broker is trustworthy and good.
When it comes to binary brokers, quality is subjective and objective. The objective part of quality is finding a broker that keeps your money safe and offers you a real chance of making money. Such things can be measured objectively, and when you choose a government-regulated broker, you can be sure that you are on the safe side.
The subjective part of quality is much more difficult to find. Subjective quality describes that a broker must offer the assets you want to trade and the binary options types that you want to trade them with, that a broker must offer high payouts in the situations that you want to trade, and that a broker must offer trading platforms that are not only good but that you feel comfortable with, too.
Depending on your character and your trading preferences, even a broker with the highest objective quality might be a bad choice for you. A trader from the United States might find it difficult to trade with a broker that specializes in European stocks, simply because these stocks are only available when this trader is asleep. In this case, even a broker with the highest objective quality will not help this trader to trade well.
To find a broker that is individually right for you, make sure to check these aspects of their service:
The best way of trying a binary broker is by using its demo. After trading with a demo for a while, you will know whether this broker works well for you.
Of course, there are much more characteristics to a binary options broker, whether the broker offers an education center or daily market updates, for example. These characteristics, however, are minor compared to the significance of having high payouts on the right types of assets.
Knowing that government-regulated brokers are trustworthy is great. But where can traders find government-regulated brokers? Well, the easiest and quickest way to finding trustworthy brokers our top list of the best binary brokers.
We have tested all relevant binary brokers and listed the best of them on our top list of the best binary brokers. We have even found a few brokers without government regulation that are trustworthy.
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For each broker, we have listed the most important characteristics such as the payout you can get, the bonus, and the minimum deposit. This information allows you to get a first impression of the type of broker you are dealing with. To learn more, you can follow one of our links to the broker’s website, or you can read our in-depth review on each individual broker.
Pick the broker with which you feel the most comfortable, and get started. If you are from the U.S., you can skip this step and sign up with Nadex right away, which is the only broker legally allowed to offer binary options to U.S. traders.
Having the wrong binary broker can cost you a lot of money. Sometimes, the right broker turns into the wrong broker without traders noticing it. To avoid this problem, here’s what you have to know.
Many binary options traders stick with one binary broker for their entire trading career. All new traders hope to establish such a longs lasting relationship with their broker. When you have found a good fitting broker for your trading strategy, it is only understandable you want to remain in this ideal situation.
Still, because of their desire to stay with one broker, some traders resemble the famous frog in the slowly boiling water: Even though their broker slowly gets worse, they fail to realize the slow decline. As a result, they stay with the broker longer than they should, which can cost them a lot of money.
To save you from the same problem, here is a list of the most important signs it might be time to switch brokers:
1) Declining payouts
The easiest way for a binary broker to save money is to reduce the payout its customers receive with every winning trade. These changes are usually small, hard to notice, and can seem insignificant. Given the number of daily trades, though, they make a big difference for the binary broker, and they will make a big difference for you over the course of a year or longer.
Stay on guard when it comes to payout. If you stick to your strategy, you will always invest in roughly the same situation. Therefore, the payouts you receive can be compared. Calculate the average payout your provider gave you with every winning trade at the end of each month or at least at the end of each year. If the number is declining – switch binary brokers.
2) Different assets
For various reasons binary brokers keep updating the list of assets they provide binary options for. Since every trading strategy works best for a certain kind of asset, you need a broker that offers binary options for the kind of asset you want to invest in.
If your binary broker stops providing your type of asset, you have to change brokers immediately. Anything else will cost you a lot of money. Many traders fall victim to convenience and try their strategy with the other assets their binary broker offers first. This is a recipe for disaster. Avoid it at all costs.
3) Declining earnings in spite of high-level trading
Some binary brokers are sneaky. They know how to hide the changes in their service, so you do not realize them. The one place they cannot hide them is in your monthly result. If your earnings are on the decline, but your trading diary does not show any signs of worse trading, and you are winning as many trades as always, your binary broker might be the source of your struggles.
Maybe they decreased payouts so slowly that you did not realize it. Maybe they started modifying the assets price. Check your trading history and make sure, the payouts you receive now are still as high as a year ago and as high as the offers by competitors. If not – change your binary broker.
The key to success, in general, is anticipation combined with preparation. Smart traders therefore always know the second best broker for them. As soon as the best broker, the broker they are currently investing with gets worse, they can switch brokers quickly and without any trouble. The number one reason people stay with declining brokers is laziness. They try to avoid the trouble of finding a new broker.
Ideally, you would set aside one hour per week, or at least one hour per month, to inform yourself about new developments and changes in the broker landscape. If you find a binary broker that offers you a better service than your current broker, do not be reluctant to switch brokers. Since binary options are a relatively new investment form, new developments often happen quickly.
Avoid any false sense of attachment to a broker. Your first and only responsibility as a binary trader is to make enough money to provide for yourself and your family. If your broker gets in the way of that, get rid of it.