On the other hand, if this broker passes the trade up to a big bank (which is accepting trades from many sources), the broker gives up some of the spread (banks charge spread for providing liquidity), and the bank (not the broker) will keep any losses or pay any profits. So, if our 1000 lot trade closes +10 pips, the LP pays the broker $100,000 which goes into the client's account. If the trade closes the trade at +100 pips, the bank pays out $1,000,000. If the client loses 100 pips, $1,000,000 from the client account goes to the broker. The gains and losses are directly proportional to the amount the currency pair moved.
A bank may make or lose money, but a bank will take measures to limit its risk. Banks trade forex with other banks. If a bank that serves as a forex LP finds itself getting too big of a net long or net short position, it can hedge itself with another bank experiencing the opposite condition.
For a binary broker, a "bet" of $10,000 gains somewhere in the range of $6000-$8500 if the client "wins" and loses the whole $10k if there is a loss. The amount of pip movement can be from 1/10 of a pip up to a multi-thousand pip movement. What bank or other large financial institution can say "If you make from 1/10 of a pip up to 10,000 pips, I will pay you $7000 and if you lose anywhere from 1/10 of a pip up to 10,000 pips I will collect $10,000? The bank's gains or losses from the real market movement of the currency pair will almost always be very disproportionate to the amount paid in or out.
Show me ANY well-known major bank that says it acts as an LP for binary trades. I've been waiting for this, but haven't ever seen it. I think I'll be waiting a very very long time - like forever.