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Binary Options Brokers

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Binary Options Brokers

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If you are new to binary options trading it is likely that you will be curious regarding how the binary options brokers generate their own funds.  After all, they are a business and to stay in business they must make a profit.  There are two parts to this question.  The first part involves understanding that it is not possible for every trader to make a profit.  If they did then the binary options brokers would not be able to generate a profit for themselves.  However, this is due to the fact that many traders refuse to learn the basics of trading and simply have more unsuccessful trades than successful ones.  With a little knowledge and practice you can avoid being one of these traders.

Of course, it is important to note that the binary options brokers need traders who operate like this; this ensures the brokers can generate a profit!

The second part of this involves understanding the different money generation possibilities available to all binary options brokers:

Trades

Every trade will either result in an agreed rate of return or a loss of your funds; depending on whether the price moved in the way you expected it to.  Every time you or another trader predicts the price movement incorrectly the funds will go to the broker.  Providing they collect more than they have to pay out they will generate a profit.

If every trader placed the same trade and won the trade then the broker would become bankrupt.  However, as everyone interprets the market differently and many traders treat this type of investing as gambling; it is virtually impossible for the broker to lose.  The odds are effectively stacked in their favor.

Commission

An alternative way of generating funds is to charge commission every time you purchase a trade.  It is then necessary for each trade to actually be between traders.  For you to predict an upward price movement, another trader would need to predict a downward one.  The successful trader will take the investment from the other trader; minus the commission which the broker takes from both of you.

Both of these methods of trading will result in a good rate of return for the trader who predicted the price movement correctly and a loss of funds for the other trader.  The binary options brokers will make the same approximate profit in either scenario.

Providing you use a regulated broker there is no specific advantage to either type of trading.

Andy McGowan
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