If you have experience of the world of binary options or have spent some time looking for an account then you will no doubt have spotted a lot of similarity between the various brokers that occupy the market space. You could be forgiven for thinking that there is actually very little to choose between many of the brokers out there.
While competition has driven the demand for similar trading features, much of the similarity is the result of what is known in the industry as ‘white labeling’. In this article I talk a little more about what this means.
White Label Solutions
A White Label is a product that is produced by one company and then sold on to another, allowing them to make use of the original product and features while branding it as their own. In the case of Binary Options, this is the online trading platform. The software based trading solution subsequently packaged and re-branded allowing a new company to quickly come to market and offer a fully featured binary options trading solution.
Since inception the binary options industry has become awash with white labeling opportunities. Notable providers of this service include SpotOption, Tradologic, MarketsPulse and Techfinancials. Each of these companies provides a dedicated binary options solution that offers the opportunity for the respective platform to be white labelled and taken to market by a prospective broker.
Bringing a new binary options broker to market using this technique is actually very straightforward. Setting up a new broker only requires a relatively small investment in order to fund the venture. In many instances this may be as little as $15,000-$25,000. This is used to pay for the licensing requirements and any particular customization’s that are required. Providers will generally help the broker with the setup of the software, front and backend integration, as well as providing ongoing maintenance and support for a fee.
Other than this all that is needed is for the broker to determine their own branding and put in place a marketing campaign to attract new clients to their platform.
A Glut of Brokers
The relatively low barriers to entry when it comes to setting up a broker has helped to fuel an ever increasing number of new ‘start up’ brokers entering the market place. As a result there are now well in excess one hundred different brokers to chose from when opening an account. This number is added to daily as the potential for building a profitable business from binary options is huge. Running a brokerage operation has high rewards if you are able to build sufficient clientele and maintain a good turnover in contracts.
This glut of brokers that has been fueled by white labeling has however proved to be something of a double edged sword. While it increases competition within the market, it has also lead to a number of ‘undercapitalized’ companies being formed. While many of these are by necessity regulated, they exist in something of a ‘grey’ world’ and are often targets for accusations of price manipulation and poor customer service when it comes to withdrawals. This can spell trouble for traders.
Which White Label?
A large amount of commonality exits between the different platform providers as they each seek to meet the trading requirements of ever more sophisticated and demanding traders. Key features such as short term contracts, Rollovers, Double Ups and mobile trading are now almost universally available should the broker wish to offer them to their clients.
Picking a broker is not simply a case of deciding on which platform to chose. The increase in the number of white label brokers mean that traders are often left sifting through large numbers of ‘me too’ white labelled offerings that offer little to differentiate themselves from their competitors. The result is a crowded and confusing marketplace where the decision on which broker to use has become unnecessarily complicated.
Once the broker has established their brand and set their trading solution live, the only way in which they can differentiate themselves from their competitors is by offering a better service to their client. In fact in many instances, the only areas in where brokers do differ is when it comes to support.
Offering educational materials, market updates and trading ideas is just one example of the value that a broker can offer their clients over the typical white labelled trading platform. Many of the more established brokers are strong in this area. They will provide materials that can really add value, such as tutorial videos, eBooks and regular Webinars.
Although on the surface, the wide range of white labelled brokers looks to offer increasing choices for the trader, the reality is that it simply crowds the market place with too many similar offerings. While there is nothing to suggest that you shouldn’t trade with any of the new entrants to the markets, the question surely has to be, why would you? Given that most only offer the same trading platforms as man of the more established brokers, there would seem little incentive to open an account with them, given they are often an unknown quantity with little in the way of a track record or indeed, resources.
There is an old saying, ‘better the devil you know than the one that you don’t’. When it comes to depositing your money in a trading account, we recommend that you stick with established trusted brokers so that you know they it will still be there the next time you go to trade.