This article aims to shed light on the underlying financial mechanics of how Pocket Option generates revenue, focusing specifically on order matching in binary options and the use of spreads in Forex and CFD trading.
Key Facts
- Order Matching Mechanism: The platform matches orders between two groups of traders – those who “go long” (betting prices will rise) and those who “go short” (betting prices will fall). Pocket Option manages these opposing positions to balance the financial outcomes.
- Revenue from Trade Imbalances: In binary options trading, Pocket Option’s earnings are maximized when there is an imbalance in trade outcomes, allowing the platform to retain more of the pooled funds from the losing side than what is paid out to winners.
- Spread as a Revenue Tool: Pocket Option utilizes the spread for forex trades – defined as the difference between the buy and sell prices of an asset – to generate revenue. Each trade includes this cost, paid by the trader, which directly contributes to the platform’s income.
- Dynamic Spread Adjustment: Pocket Option adjusts spreads based on market conditions. Wider spreads during high volatility increase the cost per trade, which can lead to higher revenue for the platform if trading volume remains consistent. This built-in fee only applies to forex and CFD assets.
- Market Direction Neutrality: Pocket Option’s revenue generation is largely independent of the overall market direction. The key is the balance in the number of long and short positions and the spread between investment amounts and payouts.
(Risk warning: Your capital can be at risk)
Order Matching Between Binary Options Traders
To understand how Pocket Option generates its money, let’s first look at how the platform operates. This section will cover the trading model along with how order matching works.
Binary Options Trading Model
Binary options are an investment tool where traders predict the direction of an asset’s price movement within a specified time frame. Unlike other trading forms that require purchasing assets, binary options simply involve predicting whether the price will rise above or fall below a certain point at the expiry of the option. Pocket Option serves as a facilitator for these predictions, matching orders between traders who take opposing views on asset price movements.
(Risk warning: Your capital can be at risk)
Financial Impact of Order Matching
Pocket Option makes a huge portion of its money by matching orders between traders who make binary options trades. The platform then pays out the winning traders and takes a percentage for itself. For instance, if 100 traders believe the price of gold will increase (going long) and another 100 believe it will decrease (going short), Pocket Option collects premiums from both sides. At the expiration of the options, the platform pays out the winners from the pool of funds collected from the losers.
The key to profitability lies in this balance: if the amount paid to winners is less than the total collected, the surplus constitutes Pocket Option’s earnings. This model allows Pocket Option to profit regardless of market direction as long as there is a sufficient balance between buys and sells.
Spreads on Forex / CFDs
Another way Pocket Option makes money is through spreads on forex and CFDs. Let’s take a closer look at how they enhance the platform’s earnings.
Understanding Spreads
A spread is the difference between the buying price (ask) and the selling price (bid) of an asset. This difference is where Pocket Option embeds its transaction fee, which is paid by the trader when a trade is executed. For example, if the spread on an asset like EUR/USD is 55 pips, Pocket Option earns 55 pips per trade executed on this currency pair.
(Risk warning: Your capital can be at risk)
Revenue Generation from Spreads
Spreads are a vital part of trading economics because they affect both the cost of entering a trade and the potential profitability of that trade. Pocket Option sets its spreads to optimize the balance between attractive trading conditions for traders and profitability for the platform.
During high market volatility, spreads may widen, which can increase trading costs but also lead to higher revenues for the platform if trading volume remains high. Comparing Pocket Option’s spread values with industry benchmarks shows that while their spreads are competitive, they are structured to consistently secure revenue for the platform.
Read our full article about all Pocket Option fees here.
Conclusion
Pocket Option’s revenue comes from two main areas: matching orders in binary options and setting spreads in Forex and CFD trading. Essentially, the platform earns money by balancing trades from different traders and through the small fees embedded in the price differences between buying and selling. For traders, understanding these sources of revenue is important. It helps you grasp how Pocket Option remains profitable and sustainable while providing top-tier services.
(Risk warning: Your capital can be at risk)
FAQs – Most Asked Questions
How Does Pocket Option Make Money From Binary Options Trading?
Pocket Option profits from binary options by collecting premiums from both sides of a trade and paying out less to winners than the total collected from losers. Also, the platform applies a spread when making a trade.
What Is a Spread in Forex Trading on Pocket Option?
A spread in Forex trading is the difference between the ask price (the price at which you can buy an asset) and the bid price (the price at which you can sell). Pocket Option incorporates this spread into every trade as a transaction fee. The spread is a primary source of revenue in Forex and CFD trading on the platform.
How Does Pocket Option Benefit From Spreads?
Pocket Option benefits from spreads by charging traders a small fee embedded in the price of each asset traded. This fee is collected every time a trader enters and exits a trade, ensuring consistent revenue. Spreads vary based on asset type and market conditions, optimizing profitability.
Do Spreads Affect Profitability for Traders on Pocket Option?
Yes, spreads directly impact trader profitability by adding a cost to each trade executed. Traders must overcome the cost of the spread to realize a profit on their trades. Wider spreads can make it more challenging to profit, especially in short-term trading.
How Does Pocket Option Ensure Fairness in Pricing and Payouts?
Pocket Option adheres to regulatory standards that require transparency and fairness in pricing and payouts. The platform uses established financial models to determine payouts and relies on real-time market data to set prices. Regular audits and compliance checks ensure these practices are consistently followed.