The trading platform is at the heart of digital binary options. It facilitates both the pricing model and execution of deals for trading clients, while also providing the broker with back-end data from which they can run their operation.
It is for these reasons, web based binary options trading software forms the very heart of the digital options industry.
Three Key Binary Options Trading Platforms
Many established and respected brokers make use of these core engines at the heart of their operation, including TradeRush, 24Option and Banc de Binary. SpotOption, for example, has over one hundred ‘white label’ brokers around the globe running their operations on its core software. Notable exceptions to this trend of using one of the big three platforms are AnyOption and EZTrader. These two veterans of the industry supply and maintain their own ‘proprietary’ dealing platforms.
While the client sees only the web based interaction allowing them to execute their trades, these solutions are in effect a complete ‘business’ package and the foundation on which the broker is based. In addition to providing a client dealing interface, they also offer a full back-end management system. This takes care of both customer relations and content management functions including risk controls and payment processing. In some respects these systems can be thought of as ‘turnkey’ or a ‘brokerage in a box’.
‘White labeling’ of the software, makes it relatively easy for a new company to come to market and establish itself as a fully fledged binary broker. All that is required of the company is some branding, a sufficient level of capital and some associated infrastructure for their operation.
With high competition for business within this industry, the level of client functionality on each of the binary options trading platforms is as you might expect, quite similar. Each new innovation from one provider tends to be quickly replicated by its competitor.
A good example of this happened quite recently with the launch of the ‘sixty second’ binary contract. This was originally developed by SpotOption and marketed by some of its premier brands.It proved such a success with traders, that you will now also find this facility on both the Techfinancials and Tradologic platforms.
The following table shows the most commonly traded binary options contracts and their availability on each of the three core software platforms.
|Call/Put Binary Option
|Yes (touch and no touch)
|Yes (in and out)
|Yes (in and out)
What is interesting is that the availability of these contracts on the platform does not necessarily mean that each broker will implement the feature for their clients. The modular nature of these solutions is such, that the ultimate feature-set provided is determined by the model that the brokerage themselves works to.
Typically those contracts which are more in demand and provide higher levels of profitability figure more prominently in the brokers line-up. In addition there is also the consideration of cost. Additional functionality on the platform has to be purchased, set up and maintained.
Providing additional trading features is not something that all brokers pockets can stretch to. This is particularly of newer companies setting up their operations. Mobile trading Apps are a good example of this. While it can be implemented on the SpotOption platform, not all brokers using this solution currently offer this facility to their clients.
How The Platform Makes Money
The binary trading platform contains an integral pricing engine. This is able to calculate the profitability on each contract sold. From this number crunching it is also able to to work out the profits (or otherwise) for the broker. Through both selling contacts and traders losing, is how binary options brokers make money.
Unlike many forms of financial investment, no charge is made for deal execution with binary trading. Instead the trading platform makes use of complex algorithms to calculate the profitability on each contract. The brokers profits are derived from the volume placed on each contract and the difference between ‘in the money’ and ‘out of the money’ positions placed by trading clients.
To put it simply the business model in this industry relies upon high turnover and an overall higher percentage of traders losing than winning. This is however not strictly a 50:50 split as the odds are stacked in the favor of the binary options trading platforms. As an example a contract will typically payout a return of 70% when ‘in the money’ while the trader will take a 100% hit in the event that it expires ‘out of the money’.
This difference between these two figures provides the broker with a margin of ‘profitability’. This can either be booked directly as or used ‘invest’ in the attractiveness of its trading proposition. For example, the broker may chose to reduce their profits and increase the contract payouts to make themselves more attractive to new traders. Alternately they may set a proportion of this profit to offer as a rebate to the trader for similar reasons.
It is commonly accepted that the pricing of binary options is often at variance with the actual live price feeds of the market. This is because most brokers don’t actually make use of live market feeds when pricing their contracts.
The terms and conditions provided by many brokers reveals that most contract pricing is based on ‘indicative’ interpretations of actual levels. This is often also referred to as the ‘price that the market is willing to buy or sell the option for.’ This essentially means ‘spreads’ . Of course whether any brokers would own up to this is questionable. Whatever the reasons, the price you get from your broker is often different from the quoted spot price. This is probably less noticeable when trading longer term contracts. It can however make it tricky to profit from very short term binary contracts.
Companies providing binary options platforms have up until now, been exempt from industry regulation. Therefore the platforms and operation of these platforms has also.
However things are changing and CySEC (the Cyprus Securities and Exchange Commission) has been the first regulator to announce the need for companies operating under its jurisdiction to meet its regulatory standards.
Solution providers have moved quickly to meet the business, regulation and technology demands that this will require. In many cases they have also made changes to meet the expected future requirements of many of the major international regulators. This should help to ensure a smooth transition to regulatory approval by most brokers operating in the key regions where most brokerage business are based (CYSEC, FSA, Japanese FA and Belize IFSC) - (read more)
2013 is the year for implementation and it should prove a smooth transition for most brokers. Clients can gain some added comfort from the additional scrutiny into financial operations that this legislation will provide, while the requirement for segregated accounts for client deposits is also a welcome addition.
The truth is of course that this announcement is hardly ground breaking. Most brokers have been moving towards these standards for the last 12 months or so in preparation for these changes. The reality therefore is that we have probably been trading in a regulated environment for some time now. We just haven’t had the official stamp of approval.
The Best Binary Options Trading Platform?
The answer here really is the one that works for you. Does the platform allow you to conduct your trading with the minimum of fuss, provide you with good pricing and reliability for trading your strategies? The boundaries between the best and worst binary options dealing platforms have become so blurred that no matter which route you take, the picture stays broadly the same.
Provided that the solution on offer fulfills your trading objectives then the choice of platform will ultimately be what is regulated and capable of meeting your needs.