How to Trade Binary Options Profitably by Joe Keane - HTML preview

3.  Finding a Broker 

The first risk that a trader should address is broker risk.  This is not a huge issue in most types of trading as a result of regulations and various insurance schemes.  Neither is it a major problem in respect of exchange traded Binary Options in the US.  However, the OTC Binary Options sector is only partly unregulated, although there has been progress in addressing this issue in Europe.  As a result, there is a risk that an unwary trader could end up losing their funds or being unable to withdraw funds as a result of unethical brokers or outright scams.   

The lack of regulation means that there is the potential for scams, which are of course illegal, but have occurred.  Scams appear where a website offers an apparently legitimate service and entices prospective traders to put money on deposit. The site may even provide trading facilities.  However, if you deposit money you will not get it back, even if you are successful in your trading.  It may just disappear from your account, it may trickle away as trades always seem to lose by just a pip or two, or it may prove impossible to withdraw the money even if you are profitable.

Such scams are not unique to the Binary Options sector and almost every part of the financial industry has experienced problems at some time or other.  I don’t want to overly exaggerate this problem as many of the allegations may come from people who jumped in with unrealistic expectations of earning big profits.  But be aware that there is the potential for problems to arise.  The internet has plenty of forums and broker review site, some of which maintain blacklists.  I’m not going to repeat their findings here as I am not about to go opening an account with a broker who has been identified as dishonest in order to test the validity of the claims.  Far from it.  Remember also that internet forums are not reliable and it is not uncommon to see a broker being dammed by one contributor with a tale of woe only to be praised by another.  So, please do your own research.

I’m not going to recommend any particular broker but here some guidelines that are worth considering: 

• Is the broker regulated?  If the broker is regulated within the EU then there are protections in place and you can be pretty confident that the broker is legitimate.  However, if you are a US resident, then be aware that EU regulated brokers are prohibited by the regulation from offering OTC Binary Options in the US.   Of course, the same firms can obtain SEC regulation to offer exchange trade Binary Options to US residents.    
• Will the funds be held in a segregated account?  This is a minimum requirement and should be stated by the broker without you having to elicit this information.
• How many years has the broker been in business?  More than 3 years is a definite positive.  Avoid newcomers until they have proven themselves.  
• Is the broker part of, a subsidiary of, or affiliated with a larger known financial operator or brokerage?  A larger broker is unlikely to want to have its reputation damaged by association with a dodgy operation.  
• Avoid brokers that engage in a hard sell or emphasise their gimmicks (usually described as incentives, bonuses or rewards).  Your focus is on the single question: are they reliable?      
• Avoid brokers that have unexpected requirements in relation to proof of identity or withdrawal requirements and read the small print carefully.  
• Look for reviews and study them, always remembering that they might be biased and the reviewer might have an unstated business relationship with the broker. 

If you have genuine doubts then don’t open an account with that broker.  There are plenty of others and most are legitimate businesses providing a service you require.  

Apart from outright scams there is a second set of issues you need to consider.  These involve what might be considered to be somewhat sharp, but legal, business practices and are particularly common among OTC brokers.  Usually, these take the form of restrictions that are placed on your account that are notified to you, but their implications might not be fully understood.  It’s the old issue of the small print and lack of comprehensive regulation.  To make matters worse, these are often introduced along with incentives so that the trader effectively opts to have the restrictions imposed.

Bonus deposits are one common practice whereby the broker increases the value of the trader’s account by some percentage of the actual funds that have been deposited.  These bonuses are usually in the range of 50 to 100% and so they appear very attractive.  The deposit is genuine and the money can be used for trading.  

However, the bonuses are usually accompanied by restrictions on the withdrawal of funds until a fairly large number of trades have been undertaken.  In effect, the broker is betting that a novice trader will lose, but cannot then withdraw the funds from the account and must continue to keep trading and continue to lose.  So, the broker, or the other party to the transaction, wins back the bonus and the original deposit.  

There is nothing illegal about this.  However, unless you have a well proven system and have experience in trading binaries, you are far better to decline the offer of any such bonuses.  

Some brokers also grade their accounts often using terms such as premium, gold, platinum and so on with the type of account depending on the size of the fund that you deposit.  However, the benefits of many of these offerings are limited. Some brokers provide access to data and charts for free to all clients and I would certainly consider this a benefit.  

There are plenty of places you can get free charts on the internet and there is no shortage of training available, much of it for free.  Have a look at a site such as TraderFreebies.com to get a start.  Everything there is for free and if you wish to get some paid training then you can see some of the choices.

The advice here is simple.  Decide what level of deposit you wish to make in isolation from consideration of these incentives.  If you then find you can benefit from one of them by dealing with a particular broker then that is a benefit to you.  But it is a secondary consideration.  Your decisions regarding these issues should be based on what you require.  Know this in advance.  Know what else you need in terms of access to charts and see what’s on offer.  But don’t make decisions just because a broker appears to be offering something for free.

Consider the following when coming to a decision:

• Some brokers concentrate on newcomers offering low deposit limits and low stakes.  Is this important to you?
• How big is the range of markets and instruments offered?  Is this important to you?
• What withdrawal costs and rules apply?  At a minimum there should be 1 free withdrawal per month with money arriving into your own account in about 5 business days.  Make sure this is clear.
• How do the payout ratios compare?  You may get a very good ratio on one market, but how do the other markets look
• How does the broker compare in terms of offering support.  A dedicated support channel is a minimum.  

Avoiding scams is obviously important.  There are a number of sites on the internet that provide reviews of various brokers.  These can provide useful information but, ultimately, it is up to you to make the decision.  You should also know in advance what you want and look for it rather than taking what is provided.  Remember, the responsibility for this decision is yours, and yours alone.

Once satisfied, open the account.  Spend a day or so on learning how the platform works including what access to data are available.  What additional information might you need?  Learn the different instruments and decide which ones you might like to trade.  Start with the €/$ rate and the S&P Index, or similar.  These are widely traded markets with good payouts and not likely to lurch suddenly in one direction.  You can, and should, move beyond these markets later.  Trade on a demo account if one is available.  How did you do?  When your confidence grows and you feel comfortable fund the account and get ready to start to trade.