Among the new regulations being applied to the Japanese binary options industry is the requirement for firms to publish account performance. The ratios include both overall broker payouts as well as the monthly percentage of losing accounts. The payout ratio is based on firms calculating the amount paid to customers on successful binary options trades, versus overall wagers placed using the instruments.
Among the seven brokers we covered, broker-weighted averages showed 74.1% of customers seeing red in their accounts for October, with brokers paying out 95.69% on overall trades. (On a side note, I can’t help but compare these numbers to signs in Las Vegas where hotels market their ‘highest of the strip’ slot payouts). The figures represent that while there is a clear majority of clients losing money trading binary options, trading revenues are around $43 per $1000 traded; thus showing broker profits are tightly linked to trading volumes.
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In terms of comparing profits to Forex trading, for Japan brokers who are limited by 25:1 leverage constraints, these figures compare favorably. Due to tight FX spreads in Japan, broker revenue capture in the country is substantially below that of the rest of the world. As such, for brokers, binary options products can provide upside revenues of more than 10x for similar sized deposits in Forex. Compared to the rest of the world, where 200:1 leverage and more are prevalent, a $43 revenue ratio is less appealing However, without minimum options durations that exist in Japan, we surmise that binary options broker profits are closer to $100.