For new traders with an interest in getting into options, binary options are a great place to start. Binary options simplify the variables involved in making an investment.
Binary options allow an investor to make a simple prediction: will the price of an asset increase by a certain date? Unlike traditional options, losses are capped with binary options to equal the cost of the option itself. They can be traded on FOREX, NADEX, and CBOE (Chicago Board Options Exchange). Investors can purchase options that expire several hours in the future, weeks, or months.
Because of their simplicity, many inexperienced investors pursue binary options. Many new investors also make the mistake of using white label binary options brokers. White label brokers are less trustworthy and more expensive. New investors should avoid white label brokers.
White label brokers
A white label broker is a small broker who buys trades from a bigger broker and pays the bigger broker a fee for being able to use their platform. The large broker can buy trades in bulk, at a discount. Then the smaller broker sells those trades to individual traders. The smaller broker often takes on marketing tasks while the larger broker manages the buying and selling aspect of the business.
As individuals, or a group of individuals, white label brokers often lack experience. Their motive is to create a brand of their own. Essentially, their entrepreneurs who aspire to start a brokerage house. They’re the middle men and women between you and the large brokerage. They claim that they value they add is investment experience, and know-how.
Before using the services of a white label broker, it’s important for new investors to ask themselves what the white label broker brings to the table. Are they experienced? If so, what knowledge have they acquired that’s relevant specifically to binary options trading? Binary options trading is a relatively new investment vehicle that has only been commercially available for a decade. What binary options strategies does the broker bring to the table, and what lessons have they learned over the years? These are all questions that should be asked of a white label broker.
White label brokers stay in business by marking up the cost of options trades, and by charging fees for their services. Often, white label binary options brokers tack on an additional $200-500 to the cost of opening an account that reputable brokers do not charge.
When opening an account with a white label broker, a beginning investor should read the fine print when it comes to the fees involved in placing a trade, using that broker, and seeking advice. Often, there are hidden costs that the borkers tack on to keep themselves in business.
While some fees are reasonable, if they do not justify the added value the broker delivers to trades, then it should be disputed or bypassed altogether by going with a more reputable broker.
The “bonus” catch-22
White label brokers often offer bonuses to their investors but with the string’s attached requirement that the investor purchases up to twenty times as many options as they initially intended to buy. Such bonuses are not as much of a benefit to the investor, who may be spread too thin by making such a huge bet at a singular point in time, but they are a benefit to the white label investor. By purchasing in bulk, a white label investor gets a discount from the larger broker managing the trades.
New investors should examine the costs and benefits of a bonus before agreeing to place multiple trades at once.