How The Brokers Making Money

bsbZenbsbZen Posts: 84
There are 2 scenarios:

The first one is based on the idea that there are two people taking opposite trades. Whoever loses, loses 100%, whereas the winner takes only eg 80% (whatever the reward ratio is when the trade is taken). That means that 20% go somewhere else- namely the broker.

The other option is that that there aren’t 2 parties, but just 1 with the second being the broker- ie me against the house. If win, I make 80% (again assuming this is the reward ratio), but the broker only loses 80% too. If i lose, I lose 100% and the broker makes 100%.

The more trades he wins the larger his gains, the more trades I lose, the quicker my account goes bust and with each lost trade it becomes harder and harder to regain my position (because I risk 100% hoping to make 80%).

So they earn money when you lose trades or when you trade a lot of times. this is why they try to lock you up with bonuses and risk-free trades (that are rarely risk-free).

Always do a good re-search about the broker!!

Kind Regards,

BSB Zen
(blueskybinary.com)

Comments

  • TobiasRobinsonTobiasRobinson Posts: 45 admin
    I'm not sure exchange traded brokers are taking 20%, but a good explanation. Daweda for example charge $.50 per contract, which i think translates to 5% on a standard $10 contract. Nadex has a spread of around 4 or 5% on exchange traded options for US users.

    The distinction between over the counter and exchange traded options is a very important one though. You could argue an OTC "broker" is not actually a broker at all....
Sign In or Register to comment.