Ever wonder why binary options brokers are always giving away “free money” and bonuses? It is definitely not because these binary options are genuinely being generous or have lots of extra money to give away to traders. The truth is that they are trying to capitalize on a fundamental weakness of human nature which is our greed. Greed is a natural part of the human psychology and because of that greed we seldom refuse something that is offered for free. Oftentimes in our rush to avail ourselves of these offers of “free money” and bonuses, we usually neglect to read the terms and conditions which are attached to these bonuses. This is where the problem starts for most traders.
The bonuses offered by the majority of binary options brokers today are actually similar to the type of bonuses offered by online casinos. The primary objective of these bonuses is to act as lure to get traders to sign up with the brokers. The second objective is to tie the hands of traders when it comes to withdrawal of these bonuses. The binary options brokers does this by requiring those traders who have taken up the bonus offer trade a certain minimum volume before they are entitled to withdraw their money.
Types of Bonuses
There are several types of bonuses typically offered by binary options brokers. The most common of which are listed below:
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Welcome Deposit Bonuses
These types of bonuses are almost always given to traders after they sign up with a broker and make their first deposit. The idea behind this type of bonus is as their name implies to “welcome” the trader. The amount of the bonus varies from broker to broker, and can be as low as 25% stretching up to 120% of the amount deposited by the trader.
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Match Bonus
Another type of bonus often given out by binary options brokers is the match bonus. This type of bonus is used to encourage traders to redeposit money with their brokers. Often when a trader loses all his investment capital, he will be reluctant to deposit any more money with his broker. So to entice this category of traders to deposit more funds, the broker will tell the trader that his deposit will be matched by an equal amount from the broker.
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Risk Free Trades
Risk-free trade offers are usually given to new traders to entice them to plunge into the world of live trading. Since the trader thinks that his money is not at risk, he will be encouraged to trade and often carelessly with negative results. To compensate the trader for his loss, the broker will credit the trader’s account with the amount that he lost while trading.
The Pitfalls of Bonuses
Most traders do not realize that the bonuses given out by binary options brokers are actually a form of trade leveraging. While they may not be called “margin”, the result is the same as the trader is encouraged to trade more than what he actually has or can afford. The better news is that the amount tied to binary options bonuses is usually not as large as when you are trading stocks or spot forex. In other words, there is a manageable limit to what you can lose with binary trading.
Another thing which most traders don’t realize about binary options bonuses is the fact these bonuses are not real money at all. They are just “credits” or numbers which a broker keys into a trader’s account. In other words, traders who take up all these bonus offers are actually swapping real money for “credits” with a broker. This is especially relevant to credits received for risk-free trades because a trader has to lose real money before he is entitled to claim his losses from the broker in the form of credits.
Another pitfall of binary options bonuses is the minimum trading volume imposed by the brokers on those who accept the bonus offer. They usually require traders to trade 20x to 30x the bonus amount before they allow traders to withdraw their bonuses. So unless you are an exceptional trader or have lady luck by your side, it is unlikely that you will ever get to meet the minimum trading volume requirement without losing all of your initial investment capital.
Nevertheless at the end of the day, you have the choice as to whether to accept these bonus offers. And if you chose to accept the bonus, be sure to read all the terms and conditions attached to these bonus offers and see if they are acceptable to you before you actually take up the offer.