How to Compare Binary Options Brokers and Platforms
Trading binary options is done through a broker, but how do you choose the right one for you? Binary options brokers and their income matter to the professional trader, who wants to know about features and value for money.
So, what do you need to ask when selecting a broker? Well, you could start by asking the kind of questions that we’ve found customers typically ask. They usually want to know how much the minimum deposit is (and in our experience it could be anything from $5 to $250), who the broker is regulated by and whether they hold a licence, whether they offer demo accounts to practice on, whether they offer a signal service and what that costs, whether there is a mobile app, whether new traders get a bonus and what the terms and conditions are like.
And that’s just for starters. Potential traders also want to know which platform has the most comprehensive feature set, like detailed charts and technical analysis indicators. And some traders want to know if they’ll have access to a wide range of assets, like commodities, Forex, indices etc.
Traders also care about expiry times. Binary options brokers and their income are intimately tied to what they offer. The broker that offers ranges from half a minute to end of day and beyond is definitely more attractive than those that don’t. Minimum trade size, available option types (like Touch, Ladder, Boundary, Pairs and so on), extra tools like early closure, Metatrader 4 (Mt4) plugin or integration all matter to many traders.
Do they offer automated trading software? What’s the help department like? Does it have live chat or are you going to be waiting ages for emails or phone calls, and will the help you get come in a language that you understand?
Binary options brokers and their income are also linked to their payouts. Who offers the highest returns?
Some of the most well-known regulatory bodies:
CySec – The Cyprus Securities and Exchange Commission (Cyprus and the EU)
FCA – Financial Conduct Authority (UK)
CFTC – Commodity Futures Trading Commission (US)
FSB – Financial Services Board (South Africa)
ASIC – Australia Securities and Investment Commission
There are other regulators as well as these, and some brokers may well be regulated by more than one of them. This is happening more in Europe where binary options are experiencing greater scrutiny than before. All the most reputable companies will be able to demonstrate that they are regulated, because binary options brokers and their income depend on it. It might be the most important criterion for choosing a binary options broker.
There are other things to look at as well though, such as signing up bonuses. Binary options brokers and their income depend on attracting new custom, so they will often offer free demonstration accounts, or introductory free trades to tempt you in. Always check the terms and conditions of these though, to make sure that they don’t bring any unwelcome restrictions or expectations, and don’t make them the main reason for signing with that broker.
Binary options brokers and their income depend on happy traders like you, and one of the best ways to ensure that you are a happy trader is to give you the chance to practice on their specific software platforms. You don’t want to have to spend money just to learn, so many brokers offer demo accounts. There’s nothing to stop you opening practice accounts at a few different brokers, so you can take their software for a test drive. Are the payouts different with different brokers for the same asset? It’s well worth checking while you’re testing.
When you’re starting out trying binary options, low minimum deposit requirements can be appealing because that keeps your risk low. Some brokers offer minimum deposits of just $5, and there is a growing number that will let you trade for less than $50.
Brokers also set minimum requirements for how much you trade as well, and it’s worth shopping around because of how much these can differ. Minimum trade figures vary between $1 and $25, which is a lot if you plan to trade frequently. If you’re expecting to trade a lot and you don’t have much experience then you could potentially lose a lot, which is one of the reasons why practice accounts are so attractive for beginners.
Payout percentages vary between brokers. Binary options brokers and their income rely on the difference between payouts and deposits, so they’re keen to maximise their advantage. There are variations but it isn’t always easy to compare brokers’ payouts because they can alter according to the underlying asset in the trade, as well as the expiry time of the option. Also, payouts will move because the broker will try to mitigate their risk level. They’re a moving target!
So, the best you can do as an investor, is to check the payouts for assets, and expiry times they are most likely to make, and then look for whose terms seem best. Doing this kind of research is another reason to recommend Demo accounts.
Exchange traded and OTC brokers offer different payouts— so they aren’t easy to measure against each other. That said, exchanges are usually the better value option.
It’s clear that it isn’t easy to select the best broker but then perhaps that doesn’t matter as much as you think, because you aren’t tied to just one. If you open an account then and end up regretting it, you can move to another, and there’s nothing to stop you having multiple accounts open at the same time either.
It’s hard to say which trading platform is best, because our preference may be different from your preference. It all comes down to personal taste. Some traders favour simplicity while others can’t live without granular detail.
That said, platforms do vary in the quality of their features and usage. You’ll find that brokers who offer CFD’s as well as binary options will have the best software trading platforms. So, names like Nadex and IQ offer a highly professional trading platform. The more professional brokers will usually provide MetaTrader integration, and some of them will offer both mt4 and mt5 functionality.
Binary options brokers make money in two ways: as a counter-party, via payout percentages, and via the spread or commission of exchange brokers.
If you’re coming to OTC brokers for the first time then you might be wondering where the commission is, but there isn’t any! That’s why the term brokers doesn’t really apply here. It’s a bit of a misnomer because brokers usually act as middlemen, or deal arrangers. But in this case, they’re acting as the opposite party in each one of their customers’ positions. That’s why there isn’t any commission or fee for each trade. With binary options the relationship is more like the one between a gambler and a casino.
Where brokers cover both sides of the trade, that makes for a generous margin. Where they don’t, the payout amount still protects them to some extent. In certain situations, the broker will also hedge its own position to reduce risk.
Companies that trade binary options using an exchange act a bit more like a broker. In the OTC market the platform is the counter party, but with exchange traded options, the broker is the middleman, acting as a go-between for buyers and sellers in return for a commission that’s usually part of the spread, rather than an upfront fee.
Brokers like this because they’re not exposed to as much risk, and traders like it because less risk for the broker means they’re able to offer higher returns. You can select the best broker by comparing spreads. The smaller the difference between buying and selling prices, the less it will cost you to trade.
Brokers offering the spread model frequently provide leverage too. Also known as trading on margin, this gives the trader access to a bigger trade size and the broker a bigger profit.
There are a few pluses to having multiple binary trading accounts. Certain brokers suit certain trading styles or types of trade. A broker might be great for short-term types of trade and offer excellent payouts on indices, but they may be let down by their ladder trades and forex payouts. If another broker offered a full set of long-term expiries along with generous payouts, and lots of choice of ladder trades, it makes sense to use both accounts and take advantage of the best of what each has to offer.
Demo accounts. It makes sense to have a lot of demo accounts. It’s the best and cheapest way to try different products on for size and find out which ones suit you best.
Reduced risk. If you have accounts in lots of places then your eggs aren’t in one basket, which is great because if one firm goes bankrupt or they have software issues, you’ll have plenty of other options.
Sign up offers. As we’ve seen already, many brokers offer signing on bonuses, so the more brokers you sign up with the more offers you may be able to receive. As we said before though, check to make sure that the terms and conditions of these ‘specials’ don’t adversely affect your trading.
Spread winnings. Some brokers will search for winning traders on their books, to restrict their trading. This won’t happen often, but if it does happen to you then that’s another good reason to have multiple accounts. They’ll usually look at total profit rather than strike rate, so using lots of broker accounts can help your successes avoid notice.
As we’ve said, exchange brokers act as intermediaries between buyers and sellers, matching the two and charging commission for the service. The market sets the prices. When there our more sellers than buyers, the price reduces until demand goes up. When there are more buyers than sellers, the option price rises.
A broker operating an exchange doesn’t care about winners and losers. They don’t get involved with, unless they’re offering leverage, so their only concern is their cut each transaction. Since the broker doesn’t carry any risk they are able to offer larger payouts to the winning trader. The commissions are relatively small too.
Other benefits include the fact that stop losses can be applied, and also that trades can be closed at any time (to take a profit or reduce losses).
That all sounds relatively straightforward, but the complicated part comes with the structure of these trades. A binary traded on an exchange will “trade” at a level of 0 to 100. Where 0 is the figure used where an event didn’t happen, and 100 means that it did. If the current price is 30, a ‘buyer’ would risk 30 times his trade size, to hopefully win 70. That means a seller would risk 70 to win 30. Not a complicated equation, but it is a little more complicated than the simple over the counter approach.
Over the counter (OTC) brokers are the most common type, but as we’ve seen, it’s not really right to call them brokers, because they take the role of counterparty in the trade. If the trader wins then they lose, and vice versa. But when they have another trader who has made the exact opposite trade, they can’t lose. Binary options brokers and their income depend on this kind of approach.
As this is riskier, brokers will offer a lower payout to mitigate some of the extra risk they are taking, so they’re likely to be paying out less than an exchange broker. Some brokers also use ‘hedging’ mechanisms to reduce their risk.
When using OTC brokers binary option trading remains simple. They’re much better at competing with exchanges now starting to offer ‘cash out’ values, so traders can close positions early, and set up stop losses. When such features become ubiquitous, OTC and exchanges will be more evenly matched. Right now, exchanges represent the better option for traders, but it’s best to use a demo account to become familiar with them first.
Deposit and withdrawal options vary from brokerage to brokerage. Here are the ones most frequently accepted: