Choosing a Binary Options Broker

Tips on how to choose a binary options broker

Choosing a binary broker is one of the most important decisions a non-US based novice trader faces. Which one should I trust? Which is the best? These are just a few examples to the questions arising when choosing your first broker. Before we try to answer these questions, let’s first answer the main question: what are binary options brokers?

As in many other fields, the broker’s job is to connect between the buyer and the seller, he takes care of supply and demand. Unlike other industries the broker also takes care of the variety of tradable assets, money and payment security, customer care and any other aspect connected to the procedure of buying and selling binary options.

Binary options trading is a rather new type of investment which had its first recognition in 2008. The industry has well developed since and now has more than 300 different companies which offer online trading through their brokerage firms. So how do you select a broker?

Although most trading platforms look alike it is important to compare several brokers before starting to trade. Comparison should be based on a few anchor rules:

Checking the minimum deposit amount

Most platforms require traders to deposit a certain minimum amount prior to your first trading session. Although this sounds intimidating, traders should understand that this is a reasonable request as reliable brokerage firms must insure themselves and firms who do not require a minimum deposit should be checked carefully. A normal deposit amount ranges around $200.

Welcome bonus

A great marketing feature well known from the gaming industry, a trust worthy broker will most likely offer some kind of welcome bonus, the percentage is subject to the deposited amount but should not exceed 100%.

Payment methods

I consider this as one of the most significant factors in choosing a broker as it shows his reliability. Most firms will allow many different funding methods. The most common ones should be Visa, MasterCard, Maestro, Skrill moneybookers, Neteller, Bank transfer and any other e-wallet solution.

Risk free trades

This is a rather new feature which allows the trader to enjoy a few risk free trades, meaning if he ends out-of-the-money on his first risk free investments his money is secured and the trader will not lose any money. This is very similar to a free demo account with the difference that if a trader succeeds he will have taken his profits into his own pocket rather than seeing the virtual money disappear.

Tutorials Demo account and learning material

A reliable broker is most likely to provide his traders with any learning materials which could help them succeed in their investments. Many brokers offer a free demo trading account which allows traders to experience trading without risking any money. Online tutorials and videos are also a common service which is provided by most reliable brokers.

U.S. vs Overseas Binary Options

Binary options outside the U.S. are very different than those offered within the United States. Overseas they are offered by individual brokers, not on an exchange. Much like a casino, these brokers make their money from the discrepancy in the odds between what they pay out on winning trades and what they collect from losing trades. Most foreign binary options brokers are not legally allowed to solicit business from U.S. residents unless that broker is registered with a U.S. regulatory body such as the SEC or Commodities Futures Trading Commission.

Starting in 2008, the Chicago Board Options Exchange (CBOE) began listing binary options for U.S. residents. These options are handled in a less “casino like” fashion. Rather than betting against the house these options require both a buyer and a seller and the price is based on known risk reward ratios so the prices are constantly changing. Thus in U.S. based options, it is your choice. Do you want options where the odds are in your favor or the “long shot” that will pay you big. You also get to choose whether to be a buyer or a seller.

In the U.S. Binary Options, the maximum risk and reward is known if the binary option is held to expiration, but you have the ability to sell early to another buyer based on the then current risk/reward based price. In U.S. based binary options the exchange makes their money from an exchange fee (for matching buyers and sellers) and not by stacking the odds in their favor.

See Also:


Binary Options: Fixed Odds Financial Bets	Options Trading A Newbies’ Guide	Trading Binary Options: Strategies and Tactics

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