To be honest, I have no idea how binary options brokers make money and I really don't care, the main thing for me is that they allow to trade and withdraw easily, and since everything is good with that so far, I'm going to continue on
My question may seem naive, but I can't find for sure the answer. Everywhere how binary options work is explained from the point of view of the trader. How can such a system work if the broker is not also making money ?
From my understandings : at no moment any money implied with this transaction is related to the market. I believe it is called an over the counter (OTC) transaction. So, from this angle, that's very like gambling with a casino, where the broker is the bank and the trader is the player.
If it is the case, the trader is playing/trading against the broker. Unlike in trading forex, where the broker make profit with the spread, whether the trader is making gain or loss.
So, like a casino, if the broker wants to make profit out of these binary options transactions, his overall clients losses has to be higher than his overall clients profits.
If my understanding is correct, I find hard to see how binary options can be the next big thing : like in a casino, the trader's interest is against his broker's interest. So if traders are getting better, the broker will have to lower the potential gains or too good traders may even get tossed out !
I know markets works on the same principle that someone's profit is made of others losses, but the broker is just a proxy, not interfering with his client interest.
Am I correct on the mechanism of how binary options transaction work ?
What are your opinions on the consequences ?
Well I cannot speak for other brokers but from nadex fees page they make money for just people placing trades. For example if your contract size is 50 they get $1 per contract up to 50. So lets say 100 people place a trade like that they make $5000 and also 1 dollar for closing the trade to i believe so thats $5100. But I do know if other brokers are using the i play the opposite side of your trade everytime scheme.