Binary Options Regulated and Scam Brokers

[JRuggerz]

Thanks for the info on these companies, very useful!

 

[AsstModerator]

I can't tell you who I'm quoting. I can say that my source has been involved in upper management of both retail forex and binary options brokers. Confidential sources who are willing to divulge information about how brokers really work are hard to get.

According to my source...

Regarding LP's for binary, there is NO such thing.
There was an attempt to do it in a company called NADEX. It didn't work at all.
No one bought it.

Unless my source is in error or something has changed, there are no liquidity providers for binary options.

 

[Roaming]

How a broker works is critical to its long term success and reliability.

I've seen plenty of well rated bucketshops that paid on time suddenly close down. Regulated brokers can go under, and being registered with the CFTC provides zero protection against either bankruptcy or changing the payout structure.

As for Duka, the plain and simple fact is that if net client winnings in their binary division ever exceed net client losses (plus ALL the expenses needed to run the binary division), they will have to reach into some other pool of money if they want to pay what's owed to clients. The fact that they are a Swiss bank and a large forex broker gives them alternative revenue to keep the binary division from ever placing the company at risk of bankrupcty. If it gets too unprofitable for too long and other adjustments can't fix it, I'm sure Duka will just phase binaries out.


NanoAlpha, I do know that analysus in blackjack can tilt the odds into the player's favor, but don't see this as automatically applying to binaries. For 1 minute trades, it's a virtual coin toss. For longer term trades, players still have to win much more than 50% of all trades to break even. If you really do have a system that can reliably work on a specific instrument and time frame, pick a regulated broker like Duka or Nadex and see how much you can make before something changes.

The problem in the argument with Pharaoh is not convinced about if winners exceed losers that will mean BO broker will go bankrupted!!
Why? First: That will never happen, we all know that from our Forex experience to say the least.
Second: When there's a difference between investor amount paid to the broker on each position and the payout by the broker, that will be enough for the broker to have way good profits on the long run even if clients had some 45% winnings.
Third: Considering the clear or hidden spreads inside the Call/Put price, that's an additional income for the BO Broker.

That all if we are talking about Regulated Fair Service running BO Brokers not the Bucketshops that Pharaoh wrongly consider all BO brokers are!!

 

[Roaming]

A lot of people put Nadex or Saxo and Duka in the same category - binary option brokers.

But Nadex/Saxo offer fundamentally different binary options than Duka/24-option/BancDeBin/...

Nadex/Saxo offer what I would call "classical binary options", or "old-skool binary options". These are classic financial derivatives, covered by financial theory, and with basic pricing theory presented in books like the one with the Amazon book number 1905641532 (search for that number on Amazon since I was told links increase the possibility of this post being moderated). These CAN BE HEDGED. The broker does not necessarily need to lose for you to win.

Duka/24-option/BancDeBin/... offer what I would call "new binary options", or "nu-skool binary options". From a financial theory perspective these don't make any sense. They are wrongly priced (fixed payout) and should never be sold by someone, since they are MASSIVELY MISPRICED. THEY CANNOT BE HEDGED. To put it another way, selling these is a sure way to bankruptcy. A smart player will buy them ONLY when they are mispriced, and win constantly, way over the 60% or so requirement to break even.

This is a crucial distinction. Nadex and Duka offer totally different products, they should never be recommended together. This only increases confusion. Nadex/Saxo has a survivable business model, Duka/24-opt/TopOpt/... does not

We were naming regulated brokers that have high reputability and enough base to not turn to bucketshops anytime soon if ever.
We hadn't go deep into its BO platforms and type.

It's true that Nadex and Saxo are somehow similar in business style but very wrong to say Duka/24-opt/TopOpt/... have same BO style or platform service.

Dukascopy clearly very reputable and regulated, enough to be a Swiss Bank, it's a shame to mention it with the bucketshops.
For the BO Service it's introducing to its clients, opposite to the others, Dukas have no fixed expiry time, it can be from 1 minute to 60 minutes, the client is who choose the expiry time as wishes. 13 pairs offered and 90% fixed payout for all that I consider is a big advantage for European and others..traders.
Add to it, Dukas BO Call/Put price is the same as Dukas Forex ECN platform prices offered to Forex Traders which concludes that there's spread for every pair(not found in others you mentioned). That said, we know that Dukas earn its profits from the spreads in BO, not just the 10% difference than clients invested amount. Moreover, that means even if we get convinced of Pharaoh idea that Winners exceeding losers will make BO brokers go bankrupted, that will not happen for Dukas looking at the spreads it includes in Call/Put prices that turns it to working just as any Forex broker or very similar to its ECN Forex service, can consider the 10% difference in payout as if ECN commissions in Forex.
I believe that's clever business from Dukas.

 

[Roaming]

I can't tell you who I'm quoting. I can say that my source has been involved in upper management of both retail forex and binary options brokers. Confidential sources who are willing to divulge information about how brokers really work are hard to get.

According to my source...



Unless my source is in error or something has changed, there are no liquidity providers for binary options.

Damn!! Couldn't figure the source from FPA search. Had you filter the search bottom for that purpose

Mentioned it before that BO brokers most probably have no LP's as in Forex but they have LP's just to get the market data feed for its expiry rates.

 

[Pharaoh]

Oh man. I am so torn on AsstMod's post. I agree with what it says, but anyone matching the described source would not be someone I'd place a lot of trust in.

And, back to the business model.

A retail broker that hedges frequently or is ECN/STP makes less money to begin with, but keeps making money on every lot traded even if every trade placed returns a profit that is withdrawn immediately. It wouldn't hurt the company's bottom line even if the clients were all psychic and made 100 pips on each and every trade.

The problem with a pure bucketshop isn't just total wins exceeding total losses. It's that the bucketshop also takes ALL of its expenses this way, so even a lesser shift in win/loss ratio can push it from profitable into the red. More than one forex broker and more than one binary options broker has gone offline with no advanced warning. Care to wager if there had been a recent improvement on overall trader performance at those companies? After all, it only takes one or two consistently profitable traders compounding their winnings to eat the equivalent of many dozens of initial deposits by new clients. As those profitable accounts grow, the winnings have to come from somewhere - and there is no LP to pass the trades to.

 

[NanoAlpha]

That said, we know that Dukas earn its profits from the spreads in BO, not just the 10% difference than clients invested amount.

Please explain how Dukas profits from the spreads in BO.

For example in this situation:

EUR/USD is 1.3350/1.3351

At the exact same moment two traders buy opposing 1 HOUR binary options on EUR/USD:

Trader A buys 1 HOUR CALL (strike 1.3351, wins if BID > 1.3351) $100 amount with 90% payout
Trader B buys 1 HOUR PUT (strike 1.3350, wins if ASK < 1.3350) $100 amount with 90% payout

1 hour later, EUR/USD is 1.3360/1.3361

Trader A won, gets back $90
Trader B lost
Dukascopy won the premium of Trader B ($100) and the difference between premium-payout of Trader A ($10), for a total of $110.

Please explain how did Dukascopy won from having a spread.

 

[NanoAlpha]

I made a mistake above, Dukas would win only $10 in the scenario.

 

[Roaming]

Okay. This explanation can be a reply to both Pharaoh and NanoAlpha to clear up how regulated fair running business binary option brokers like Dukascopy(in this case) can make money without having to become bucketshops, change its payouts % or go bankrupted.

Dukascopy binary options platform prices are same as Dukascopy ECN Forex platform that can be found on Dukascopy website front page live quotes showing 0.2-1.5 pips on the most traded pairs, more spreads on others. Dukascopy offers 13 Forex pairs for its Binary Options Platform, USDRUB is the only pair that has wider spread that is normal at all brokers. So, clients are getting 0.2-1.5 for around 10 pairs.
90% is the payout % for all pairs available, it be EUROUSD OR USDRUB, same payout.

I'll start with the 10% difference between traders investment amount and Dukascopy payout %. I'll consider the 10% to be similar to ECN brokers commission amount on each position.

Dukascopy has spreads I just talked about 0.2-1.5 pips mainly. This is the main profit Dukascopy earning from its Binary Options Service.
As much Volume clients are generating as much Dukascopy profit is increasing dramatically.
Buying or Selling any period from 1 minute to 60 minutes that Dukascopy offer, does not matter because same principle of fee the broker earns from the spread and 10%(name it commission) applies.

In NanoAlpha example: Trader A buys 1 HOUR CALL (strike 1.3351, wins if BID > 1.3351) $100 amount with 90% payout
Trader B buys 1 HOUR PUT (strike 1.3350, wins if ASK < 1.3350) $100 amount with 90% payout

Again, if 1 minute or 1 hour(60 minutes) does not matter, the lower time the better for the broker as it generates more open/close positions etc

Dukascopy have earned from the above example the spreads from both clients(if they loose or win), in EUROUSD example it starts at 0.2 pips.
In Forex lot size $100 = 10 lots per pip that is = $20 Dukas had earned from each client = $40 on both clients and we are still talking of the lowest spread pair.
How when we start with 0.5-1.5 pips??
This is from the spreads only. Gong back to the 10% commission(renamed) Dukas earn on each client, that is $20 on both.
And, if we gonna use Pharaoh idea of Winner takes losers money, then they are cancelling each other, Dukas loosing nothing from opposite trades.

In the lowest spread pair example and only $100 investment, Dukas have earned $60.
Calculate how much profits can be earned by Dukas on accumulated positions as lots increase volume etc. Simple and Clear.

More explanation: Dukas might start not having serious problems but its profits will decrease only only only if Winners % is real very high compared to losers, which brings us back to the main discussion with Pharaoh that this probability is very very rare to happen at any Forex broker so how for Binary Options brokers when BO traders are new to this business!!

 

[NanoAlpha]

You still didn't explain where the $40 or so spread profits you insist exist in Dukas BO came from.

Going back to my example.

Dukascopy took in $100 + $100 = $200 from Trader A + Trader B
Dukascopy paid out $90 to Trader A
==========
Dukascopy netted $10 profit from these two opposing trades.

You insist that on top of this, Dukas earned another $40 or so. Where do these extra dollar came from? As you can see in my example, all the dollars paid by the two traders are accounted for.

If Dukas earned extra dollars from the spread, where did they came from?