It is FIFA World Cup 2018. It is the finals and this is the most important event of the year for you. You have canceled all your plans in order to watch the match with four of your closest friends. The last world cup winners, Germany, are playing your favourite team, England. You are confident that your team will win. Your friends, however, are not. They think Germany will take the first goal in the first 30 minutes. They are so sure, that they are willing to bet money on it. You are stubborn. You take the bet. You slam $50 on the coffee table that you are seated at, and state that if England scores first before the 30 minutes are up, they each have to pay you $25. If neither scores, the deal is off. Your four friends laugh at you, and gladly agree to the bet.
At the twenty minutes, Germany makes a fumble. Against all odds, England takes the ball. After a avoiding a tackle by a german striker, England makes the first goal. Your friends are all shocked. You are grinning. You have just made $100, with only risking $50.
If this story resembles any sort of transaction that you may have made in the past, then congratulations, you already have a basic understanding of how binary options work.
In simple terms, binary options are a method where people can trade the price fluctuations that occur in the global markets. With binary options, the trade is made on a simple ‘yes or no’ option, where the trader takes a position based on his belief on whether the price of a certain asset will be a above a specified price, at a specified time. For example, will the price of silver be above $18.50 at 3:00 p.m.? If you believe the answer is yes, then you buy the binary option, if no, you sell it.
Of course, this is a simplified explanation that does not mention all the details about the transaction, but binary options are fairly simple to understand. They are also a fairly new way to trade assets compared to trading stocks and futures. Due to this, brokers who offer binary options are always looking for ways to attract new customers. One of these ways is by offering a binary options bonus.
The Binary Options Bonus
Many brokers who offer binary options, attract new traders with the promise of a free binary bonus if they sign up to use their services. It is not unusual to see advertisements on broker websites that offer traders from 30% to even 100% binary options bonus on their initial deposit. So, if a trader deposits $500, he could potentially receive another $500 in bonus. What the new trader may not know though, is that the bonus offered is not cash. Rather, it is leverage that the trader can use to take larger positions that he would not have been able to make with only his deposit. Doing this gives the trader the opportunity to make larger profits.
Essentially, using a bonus can be a great way to get a trader started. However, things may not be as simple as they appear. The advantage of using a bonus on binary options is that the trader can quickly turn over the amount of money in the bonus. After a certain number in turnover is achieved, the trader may then withdraw either the bonus as cash or the profit made from the bonus. All of this however, is dependent on the terms and conditions of the broker.
What the novice trader forgets, (and what may hurt his dreams of making massive profits with a small deposit) is the fact that brokers are still businesses which need to make a profit. For many, the profits that they make are at the expense of the customers that they attract to use their services.
In simple terms, once they have your initial deposit, many brokers make it difficult for you to leave their services. Many brokers do this, through restrictions that they make on either the profits that the trader makes, or by making it difficult for traders to withdraw their initial deposits as well as binary bonuses. They do this because they know that most traders (especially the new ones) lose their initial deposits very easily, and they can then make a quick profit from their loss.
You are a new customer for a broker which you looked up because a friend told you about the incredible binary options bonus percentage that they offer: 100%. One hundred percent? You become excited. Surely, with this free money, you’ll be able to make a great profit in a short amount of time! You have been practicing on demo accounts. You are certain that you will be able to do well.
In fact, you are so sure that you deposit all of your meager savings into a new account to trade with this new broker, $1,000. The broker immediately deposits another $1,000 into your account. You are delighted at their speed. Now, you have a total of $2,000. You are excited and hopeful. You do not realize that with real money on the line, things aren’t as easy as with demo testing. After a long line of too many losing trades, your account has dwindled to half of what it was. You become discouraged and finally decide to cut your losses. You try to withdraw what is left. You realize that you cannot.
The broker had a restriction; something you didn’t bother to read the terms and conditions. You now realize that you can only request a withdrawal once you have made a turnover of 20 times the bonus that they gave you (20 x 1,000 = 20,000). Since have been trading with a risk of $50 per trade, this means that you need to trade 400 times to be able to withdraw your money (20,000/ 50 = 400). Now, you feel duped.
Unfortunately, this is the story that many traders experience. And after which, many believe that they have been defrauded. This is not the case. The restrictions that the brokers have in their terms and conditions are perfectly legal. They are in fact, a usual guideline that most binary options brokers follow. That is why reading the terms and conditions agreement for each broker that you want to do business with, is extremely important.
But, Wait, There is More…
While the deposit bonus for binary options that we have discussed is the most common type offered by brokers, it is not the only one. There are in fact about three others that are fairly popular. Since deposit bonuses are usually offered to new customers, brokers have found ways to reward their existing customers to continue to use their services.
Binary Options Reload Bonus
Like the name suggests, this type of bonus is given to customers who ‘reload’ or deposit more money into their account after their first deposit. The rules regarding binary options reload bonus are similar to that of the deposit bonus. However, some brokers only offer this bonuses to clients who use a particular method to deposit their funds, like the electronic wallets (example: Neteller and Skrill).
Risk-Free Binary Options Bonuses
This type of bonus is different to the binary deposit and reload bonus. Unlike them, with this option, brokers do not offer you the bonus directly in your account. Instead, they offer a type of insurance that the trader can use if he experiences some losses. For example, if a trader gets $100 in a risk free bonus, it means his losses up to this amount are covered by the bonus. So, if a trader loses $120 on a trade, the risk-free bonus covers $100, and he only experiences a true loss of $20.
Some brokers who offer these bonuses make things a little complicated by putting a ‘number of trades’ restriction. This means that the loss that the bonus covers have to be experienced within a particular number of trades, or else the bonus is invalid and cannot be obtained. For example, if the restrictions have a limit of five trades and the trader does not lose money until the sixth trade, then he cannot make use of the bonus.
No Deposit Binary Options Bonus
This is a rarely seen binary options free bonus, and only very few brokers offer it. The only thing that the trader has to do to collect this bonus is to open an account with the broker. No initial deposit has to be made. The bonus may be traded freely, however before any profits can be withdrawn, the trader has to make a deposit into the account.
Should You Use a Binary Bonus?
The answer to that question depends on you, and your expectations towards trading. It also depends on your appetite towards risk and the use of leverage. Binary options are a great way to trade, but as with any financial instrument, success depends on the practices of the trader and his ability to make an informed decision. The best advice to follow is to do your research before making any decision in order to ensure that you are making the best one.