The term ‘rebate’ is used to describe a ‘cash back’ style scenario in binary options where you are credited back a proportion of your initial investment following a trade. Brokers sometimes offer this on trading contracts, crediting back a proportion of your investment amount if your trade ends ‘out of the money’ at expiry.
It is also applied to third party companies that offer the trader the chance to earn a rebate on their trading account turnover. Here we look at these two different rebate options and what they mean for traders.
The Broker Rebate
Many brokers now offer the opportunity for traders to select the level of risk to reward they want to receive on their contracts. These adjustments will determine the amount of profit on an ‘in the money’ contract together with the rebate that is paid if the trade ends ‘out of the money’.
This works by essentially trading part of the profit for a higher rebate if things go wrong.
For example, you might choose to accept a 25% rebate on your trade with a 65% profit. However if you are more confident in the outcome you might select only a 5% rebate with a higher pay out of 80%. This affects your ‘risk to reward ratio, something that you can read more about here.
Different Rebate Options
In addition to rebates from binary options brokers you can also make use of specialist companies that will offer you a rebate on the transactions made on your account. You can subscribe to these services with the opportunity to earn a monthly rebate paid on the total volume of turnover of your account. This is normally a percentage amount of the total trading volume achieved on the account in the preceding month.
For example you may execute trades to the value of $1000 in your account in a given calendar month. A rebate of 3% would net you a $30 rebate at the end of the month. This would be paid independent of your actual trading results i.e. it is based on the turnover on your account and not your profitability.
So how can these companies afford to this? Well the answer is simple. They simply refund you back a small percentage of the profits that they receive from the broker. In getting you to sign up through their binary options affiliate program, they can pass on a proportion of their profits back to the trader.
The Pros
The biggest advantage of trading through a rebate provider is of course, the ability to earn what is essentially free cash. Once you have signed up and registered you don’t have to do anything further. You can simply sit back and wait for your rebate to be paid each month.
This is a legitimate benefit. It will assist you in reducing you overall trading costs, irrespective of whether your trading turns out to be profitable or not.
The Cons
It is however important to understand that these companies only make a profit by achieving high turnovers in their customers’ accounts. Therefore expect them to ‘want’ you to trade more. Consequently free signals and trade suggestions are likely to feature prominently in their promotions.
Of course whether these ‘tips’ prove successful is of no concern to the provider; they are not interested in your profitability or success, only your ‘churn.’
There is also no requirement for companies offering binary options rebates to be regulated. They have no real obligation to share the profits that you make them. It is also worth nothing that companies offering binary options rebates can and have shut down in the past without trace.
In short these companies lack any real validity. They are often set up by people looking to make a quick buck. If you do decide to give them a try, proceed with caution.