3. Company’s Capitalization
Another factor in the selection of a broker is to look at their market capitalization. It is always prudent to ensure that the broker shortlisted by you is well capitalized to minimize the risk of losing all funds if the broker does go bankrupt or if you have placed a big winning trade. Well when a company is regulated you know that they are well capitalized, they have to have millions of dollars in their accounts to even apply for regulation. Previously, firms with as little as $100,000 operating in the U.S led to many of them having issues with their clients’ money when the market tanked. However, recent regulations have been tightened in the U.S. that requires brokerage firms to have at least $20 million dollars in capitalization in order for them to operate. This requirement is monitored by the National Futures Association (NFA) in conjunction with the Commodity Futures Trading Commission (CFTC). To check whether a firm is sufficiently capitalized, you can refer to the CFTC website. They have a list which shows the capitalization of their members that is updated on a monthly basis. However, it should be noted that many Forex and binary option firms have difficulty in meeting this requirement and are forced to relocate their operations outside of the U.S to Europe.
Nevertheless, as retail trading in the financial market is becoming more popular and legitimized many countries in the EU are also following the footsteps of the U.S in terms of capitalization. In this respect, capitalization is becoming less and less of an issue which a trader has to worry about. The reason for this is that many binary options brokers are hedging their risk or underwriting their risks with third parties. This means that even if they lose out on an elephant trade they can afford to return your profits. Some brokers also take the other side of a very large trade by trading it at another brokerage house. This guards the company from losing too much in one trade.
It’s a good idea to ask the brokerage you are trading with about their capitalization and also whether they hedge themselves or are underwritten by third parties.
Ensuring the capitalization of the firm is one very important factor to consider when doing your broker research and selection.
4. Trading Platforms
There are many types of trading platforms on the market. With binary options most of them seem to be web-based. A lot of them are white labels of other companies platforms where they have taken their own branding such as logos and placed it on the platform ie. SpotOption and Tradologic platforms. That’s ok it just means they don’t have their own proprietary platform.
So let’s break it down.
Binary brokers offer different types of vehicles on their platforms. The classic option is UP/DOWN or PUT/CALL. This is the platform you’ll see offered by all the companies. Very simply you choose the market movement at a set expiry and whether the asset will have travelled up or down at that expiry. What to look out for here? Ideally you will have a chart available to look at before you choose the asset type. This will make your task easier and quicker. It’s the difference between:
Web Based or Non Web Based Platform
So what is the main difference between a Web Based Platform and a Non Web Based Platform? A web based platform is totally independent of the computer which a trader is using to trade with. Non Web Based Platform normally requires users to download a piece of software before they can start trading. What this mean is that a trader will need to trade from that specific computer. If the computer that a trader is using is a desktop, this would mean that the trader cannot trade from anywhere in the world. In other words, he is not mobile.
Some of the better brokers are even offering mobile trading types where you can open their platform from your iPhone or SmartPhone using a downloadable app. Your account opens so you can keep an eye on your open positions, execute a trade and even deposit funds.