Binary Options Brokers Fees and Commissions Explained
Binary options trading appeals to traders for many reasons, but one of the primary ones is that there are usually no commissions associated with the trades you place. You’ll notice that there is a gap between the payout percentages and the out-of-money return rewards.
For example, a binary options site might pay 75% out on winning trades, and return 15% on losing trades. 75%+15%=90%. There’s a gap of 10% which is in the broker’s favor. You can think of this as a kind of spread. It puts the odds in favor of the house, so that over time, assuming you aren’t an amazing trader, the house will win.
This does add to your difficulties if you’re a serious trader. If you’re trading for entertainment, it should neither surprise nor concern you.
No Commissions Binary Trades
The reason for explaining all this is so that you can understand why there are no commissions on binary options trades. Any binary options site (whether it’s a good one or a bad one) has to make money somehow. It’s important to understand how a good site should be making money, because the bad sites have other means of profiting off of traders.
One thing which helps us to identify scams (not in every instance, but it does help), is to look at the deposit and withdrawal fees and limits.
It’s normal to expect some fees. The most typical fee is a $25 fee (or close to) on all withdrawals done using wire transfer. The majority of brokers offer free withdrawals when you use a credit or debit card or a digital method such as CashU. Most brokers also don’t charge deposit fees. There is generally a minimum deposit amount when you first open an account and decide to start trading, and after that you’re usually allowed to deposit as little as you like at any given time.
No Commissions – But Be Wary Of Fee’s
The first thing which should put up a red flag for you is if there are withdrawal fees on every type of withdrawal, regardless of the method you use. What that means is that you always will have to pay some of your own money to get your own money back in your hands. Since it is theoretically supposed to be your money, it should be easy for you to get at it. If you have to pay for it, is it really still yours?
In theory, any broker you trade with is kind of like a bank. Of course, a lot of us have gotten used to terrible service from banks over recent years, but that doesn’t mean that a bank doesn’t owe you respect. Your broker is effectively borrowing your money. Your broker can make interest off that money. That means you deserve your broker’s total respect as a customer, and again, your money should be treated as your property.
Another huge red flag is if there is withdrawal minimum which is set to an amount that is higher than the minimum deposit. Withdrawal minimums on the whole are unsavory since again, they make it hard to get your money out. But they’re even worse if they are set in such a manner that a trader who makes an initial deposit has no chance at ever withdrawing his or her money unless he or she becomes profitable trading.
For example, let’s say you find a broker that has a minimum deposit of $100. Maybe you got excited to get started and glossed over the rest of the terms without really taking in the withdrawal information. And then, for whatever reason, you consider taking your money out of your account. Perhaps you read some of the other terms and thought, “Maybe this isn’t the broker for me.” Or perhaps you saw some reviews which made you leery. Or maybe you lost your first trade, putting you down to $80, and you think you should pull out before you do any more trading. Or you could just need the cash to pay a bill. Whatever the reason is, it doesn’t matter—you don’t have any way to get your money out.
Why? Because you find out that the company’s withdrawal minimum is $200. Since you have $80 in your account, you’re $120 away from having the minimum withdrawal amount. Your $80 effectively belongs to the broker. Indeed, you needn’t have made any trade at all to lose your money. If you had your full initial deposit ($100) in your account, it’d still be too little to withdraw. Imagine how much money a broker with limits like this makes off of customers who simply fail to read the terms and then fail to go on to become profitable traders.
Carefully Review The Terms
This is why it’s so important that when you’re looking for a binary options website to trade on, you very carefully review the terms surrounding deposits and withdrawals. Look for a broker that ideally has no withdrawal fees (at least for credit card withdrawals), and no withdrawal minimums. The higher the minimum withdrawal amount, the bigger the red flag. And if it exceeds the minimum deposit amount, you can tell off the top that a company is probably hoping to make money off of overly eager customers who fail to read the terms at their own peril. Those aren’t even trading losses! Always remember that your money should be your money.