Weighing Broker Risks: Forex vs Binary Options

“What is riskier, Binary options or Forex?” is one of the most frequent questions being asked.

Step 2: Analyze

This is self-explanatory. Statistics are just numbers if you do not analyze them and make conclusions. In the case of risk management you should look at least for the following things:

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–      Popular instruments

–      Wins/losses

–      Popular timeframes

–      Trading periods (during news, market openings/closings etc)

This will give you a solid base to build your risk management policy, it’s important to further analyze every little piece because it will determine your action during the next step.

Step 3: Basic Configuration

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Now is the time to set-up your business and binary offering. Based on the conclusions you arrived at step 2, you need to choose which instruments you will offer initially. It is not wise to offer every instrument available from the start. Such a decision will expose you to unnecessary risk, and your clients as a whole won’t be trading all those instruments very often if at all. After choosing your first batch of instruments you should configure them appropriately:

–      Minimum/maximum bet

–      Payout percentage

–      Available timeframes (while you’d be unique to offer 1 second 100% payout binary options, it wouldn’t be a wise choice)

Having done this, you can begin offering these binary options to live clients.

risk management word cloudStep 4: Active Risk Management

Basic configuration will only work for a limited amount of time. The problem with demo account statistics is that they serve only to give you a general direction of where you will be going. Now is the time to actively monitor the trading occurring in your brokerage and be ready to act fast to minimize your exposure. The most basic way of doing this is adjusting payouts in real time. This can be done during periods of high volatility or low volatility depending on your goals. There is other tools in the hands of the binary broker that will allow them to manage their risk and at the same time keeping transparency (ask your platform provider). It is all about adaptation and being able to react fast, you will need dedicated risk managers to do this successfully, very much like in Forex. The problem with finding dedicated risk managers is that you will need to train them yourself, as the binary industry does not currently have a very good work pool of risk managers with experience.

All in all, it’s important to keep in mind that this is a business, it is risky, but not riskier than Forex. Shortcuts and a lack of effort will be detrimental in the long run. The current negative reputation of binary options among brokers, journalists, and clients is mostly due to the limits imposed by technology and the fact that very few know how to manage risk without losing transparency. You can become a flagship broker and you can only do so if you manage your platform, risk, and instruments yourself.

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