Access to binary options requires that the trader must go through companies that provide a trading platform with which to trade, plugged in to the market exchanges. These companies are known as binary options brokers.
Binary options brokers perform the following functions:
- A broker acts as a repository for the funds that traders use as trading capital. In other words, a broker holds these monies for traders in trust, just as is the case in the forex arena.
- They provide access to the exchanges so that traders can access price feeds and other market information for the purpose of trading.
- They also provide a means by which traders can have trade access to the market by providing trading platforms for traders to execute trades.
- They also provide a means by which settlement of bets executed by traders is done.
Let us review each of these functions of binary options brokers one after the other.
As Funds Repository
Traders can only deposit money to their accounts by wiring such funds to the broker, who in turn reflects the relevant account balance on the trader’s account on the trading platform. Where a trader chose the wrong trade option, the appropriate deduction is made. When money is made, this is also reflected on the trading platform. In well-regulated jurisdictions, the laws require that such funds sent by traders to brokers as account trading capital is best kept sequestered, or kept in totally different accounts from the accounts that brokerage firms use for their own operations. In addition, regulators review this information to ensure that the firm is adhering to the laws. This keeps those funds safe in case of broker bankruptcy. Reviews have shown that where a broker fails to adhere to this rule, traders’ funds are easily jeopardized.
Traders can only trade fixed odds options and have access to price feeds and other market information using binary options trading platforms. A review of these platforms shows that they are of different types. A binary options broker may decide to spend some money and time to develop its own unique platform with unique trade types, or may decide to save time and money by using a modified/customized version of an existing turnkey solution as is the case in the forex market where many brokers offer the MetaTrader4 forex platform. Most brokers operating in the binary options arena today use the latter option. Some may like to stick to unique trade types in which case they will go for the proprietary versions. Others may decide to go for generic trade types.
Lately, brokers like Banc de Binary and others have pioneered the new generation of platforms designed for smartphones and tablet devices. Whether it is the iTrading facility pioneered by Banc de Binary or the other applications we see with brokers like Optionfair or Zone Option, reviews shows that platforms for mobile bets have now come to be a mainstay of the digital options marketplace.
Settlement of Trades
Digital option brokers operate a desk which is supposed to provide for settlement of trades. The procedure is the same whether the trader is trading forex or a digital option. The traders who chose winning bets are paid by the traders who lose bets to make for balance in the system. It is the job of the broker to review bets and make sure that all invested amounts that have been put up and lost in losing option trades are used to compensate traders who make winning trades in time, and that the appropriate account balances reflect the said status. If the trade entity was awarded a bonus, it is also the job of the brokerage firm to review the terms and ensure that any bonus awards are well utilized.