Binary Options Arbitrage
Binary options arbitrage is a niche strategy which can reap high rewards if traders capitalise on rare market inefficiencies. This guide explains how binary options arbitrage works, explaining how to get started and listing the key advantages and disadvantages traders should consider. We have also ranked the best binary options brokers and platforms that support arbitrage trading strategies.
Binary Options Arbitrage Brokers UK
Pocket Option offers short term binary options on a user-friendly platform with competitive payouts of 90%+. Over 130 assets are available with fee-free deposits and withdrawals. Joining bonuses are also available to new users.
Min Deposit Payout % Expiry Times $50 92% 5 seconds - 4 hours Bonus MetaTrader 4 Markets 50% Deposit Bonus No Forex, Stocks, Crypto, Commodities
IQCent offers binary options on forex, stocks, cryptocurrencies and commodities with high payouts up to 98%. The broker uses a proprietary platform with advanced analysis tools and traders can choose contract timeframes ranging from 5 seconds to months, appealing to both short and long term traders.
Min Deposit Payout % Expiry Times $250 98% 5 seconds - 30 days Bonus MetaTrader 4 Markets 20% to 200% Deposit Bonus No CFD, Forex, Crypto, Commodities
Videforex binary options are available from 20% payouts on crypto up to 98% payouts on less volatile assets, beating many competitors. A wide range of contract lengths are also supported from 5 seconds up to 1 month. New users will appreciate the welcome deposit bonus.
Min Deposit Payout % Expiry Times $250 98% 5 seconds - 1 month Bonus MetaTrader 4 Markets 20% to 200% Deposit Bonus No CFD, Forex, Stocks, Crypto, Commodities
Dukascopy offers binary options on currency pairs, stocks and indices, alongside powerful trading tools and market insights. User gets flexible contract sizes and deposits are protected by EU law, though the $1000 starting investment is higher than alternatives.
Min Deposit Payout % Expiry Times $100 90% 3 minutes - 1 day Bonus MetaTrader 4 Markets - Yes CFD, Forex, Stocks, Crypto, Commodities
AZAforex offers binary options with time-dependent payouts that can be taken out on any asset included as a CFD or spot instrument. Over 50 binary options are available with a $1 minimum stake and payouts up to 190%.
Min Deposit Payout % Expiry Times $1 190 Bonus MetaTrader 4 Markets - No CFD, Forex, Stocks, Crypto, Commodities
Focus Option offers binary options trading on 140+ instruments including forex, cryptocurrencies, commodities, indices and company shares. Contracts include 30 seconds, 1 min, 2 mins, 5 mins, 15 mins, 30 mins, 1 hr, end of day, and long-term contracts up to 30 days. Decent payouts typically climb to 95%. The browser-based platform is beginner-friendly with sophisticated analysis tools.
Min Deposit Payout % Expiry Times $10 95% 30 seconds - 1 week Bonus MetaTrader 4 Markets - No CFD, Forex, Stocks, Crypto, Commodities
CloseOption offers binary options trading on 30+ fiat and digital currencies through an easy-to-use web-based platform. 15 contract timeframes are available from 30 seconds to 1 month, suiting both short-term and long-term traders. New users also get a joining gift.
Min Deposit Payout % Expiry Times $5 95% 30 seconds - 1 month Bonus MetaTrader 4 Markets - No Forex, Crypto
World Forex offers binary options where you simply decide the stake, price direction and contract timeframe. The payouts are high at up to 100% on American contracts and 85% on European, which also offers a partial refund to traders who close contracts before expiry.
Min Deposit Payout % Expiry Times $1 100% 1 minute - 7 days Bonus MetaTrader 4 Markets - Yes CFD, Forex, Stocks, Crypto, Commodities
GC Option offers beginner-friendly binary options with 86% payouts and opportunities on forex, metals and cryptocurrencies. The broker stands out for its market-leading trading software and access to short-term opportunities with contracts spanning 60 seconds to 48 hours.
Min Deposit Payout % Expiry Times $10 86% 1 minute - 48 hours Bonus MetaTrader 4 Markets - Yes Forex, Crypto, Commodities
RaceOption offers 100+ binaries with decent payouts up to 95% and ultra-fast expiries from 5 seconds. With a $250 minimum deposit, clients can enjoy free deposits, fast withdrawals and a range of trading bonuses.
Min Deposit Payout % Expiry Times $250 95% 5 seconds - 30 days Bonus MetaTrader 4 Markets 20% - 200% Deposit Bonus No CFD, Forex, Stocks, Crypto, Commodities
BinaryCent provides binary options trading on a range of markets through a slick proprietary platform. Traders can invest as little as $0.10 per trade and earn payouts up to 95%, and these are excellent terms that accommodate casual and low-capital traders while allowing profit opportunities.
Min Deposit Payout % Expiry Times $250 95% 5 seconds - 30 days Bonus MetaTrader 4 Markets 20% to 200% deposit bonus No CFD, Forex, Stocks, Crypto, Commodities
Binary Options Arbitrage Explained
Before we cover how to execute a binary options arbitrage strategy, it’s important to understand how binary options and arbitrage systems work individually:
Binary options are fixed with a yes or no outcome; there is no grey area. The conditions of each binary options contract are agreed with the broker before the contract starts. Conditions include expiry time, payouts and strike price. This means that the exact amounts a trader stands to gain or lose are set before the contract begins, and will stay the same regardless of how much the price moves.
Binary options can be traded on most asset classes such as stocks, commodities, indices, cryptocurrencies and forex pairs. Traders can take a long or short position depending on whether they believe the price will increase or fall. In both these scenarios, the trader is betting that an asset’s price will move in a certain direction.
If the trader’s bet comes in, they will receive a payout from the broker. This payout varies between brokers, with some offering 95% or higher. This means that while an unsuccessful trade will mean losing 100% of the stake, a successful trader will still usually need to pay a premium to the broker from a successful trade.
The concept of arbitrage is when an asset is listed on two different exchanges at different prices and a trader can buy and sell on the respective exchanges, capitalising on the difference. This can be explained with a straightforward example…
BP is listed on the London Stock Exchange (LSE) at £45 per share and listed on the New York Stock Exchange (NYSE) at $50. Once both currencies are converted into dollars, the LSE BP Share is valued at $51.20, therefore the trader buys on the NYSE and sells on the LSE making a profit of $1.20 per share (less any commissions).
Although profits are small in the example above, in high volumes, returns can be significant. But importantly, financial markets are assumed to be efficient and therefore arbitrage opportunities can be hard to come by.
Binary Options Arbitrage Strategies
Hopefully the simplified arbitrage example above has explained the key components of the concept, now let’s look at possible strategies in the binary options space.
Buying & Selling Binaries Simultaneously
One method of arbitrage involves simultaneously entering both a call and put agreement on the same asset with different brokers on different platforms. It is unlikely that any broker would allow you to take out opposing positions on the same asset, and even less likely that this would be profitable if you could.
It is important to ensure that the payout is sufficiently high, otherwise the cost of the premiums on both the call and put sides will outweigh any expected profit. It is also critical for the contracts to have the same expiry time and date. The objective is to ensure that one of your two binary options contracts is in the money, so the net gain is a profit.
Note, due to the pricing structures of binary options contracts and efficient global markets, opportunities for this type of arbitrage are usually very limited.
Information about assets on certain exchanges can come out while the exchanges themselves are closed. For example, after 4:30 pm GMT traders can still speculate on LSE market information they receive even though the price of most assets will remain at the price they were at when the market closed.
An example of this would be if BP closed at £50 per share on Tuesday afternoon but a news leak came out on Tuesday evening regarding an earnings report which is expected to increase the share price of BP to around £60. Traders can buy binary options which are aligned with that news (expiry price of £60 and expiring the next morning), then when the market opens on Wednesday morning and the price increases to £60, the trader will be in the money having capitalised on the timing arbitrage.
Arbitrage On Correlated Assets
Some financial assets are linked in the way that they move in the market. When this is the case, binary options traders can capitalise on expected price movements before they happen. A good example of this is commodities like oil and gold which are invertedly priced against the dollar, so when the dollar increases in value the commodities normally decrease.
But although linked, their prices do not immediately respond to changes in the other’s price, so binary options traders looking to capitalise on an arbitrage can get in before price movements are reflected in the market.
How To Start Binary Options Arbitrage Trading
Choose A Broker
Traders may already be signed up with a broker that offers binary options. If not, there are many brokerages and platforms that could support binary options arbitrage. Depending on your arbitrage strategy you may need to be signed up with more than one broker.
When comparing accounts, consider the following factors:
Payouts & Premiums
The payout rate and the premium on a binary options contract are two of the most important factors. This is particularly the case when trading on arbitrage. To maximise returns on trades, you will need to secure high payout rates. The best firms offer payouts of 95%+.
Deposit & Withdrawal Methods
Most binary options brokers, such as Pocket Option and IQCent, offer a range of payment methods where traders can deposit and withdraw quickly at low cost. As well as debit and credit cards, an increasing number of binary options brands are accepting crypto payments, including Bitcoin.
Leading binary options brokers will be transparent about their fee structure and their processing times before asking customers to sign up or pay a deposit. For any missing information, users can utilise the FAQs or contact customer service via live chat, phone or email.
Security & Reputation
Ensuring that your funds are safe when investing is important for any trader, regardless of their experience level. Although the FCA has restricted binary options, UK traders can still find a reliable, offshore broker through careful research. We have ranked the most trustworthy binary options brokers.
There are many other additional features that investors should consider when trying a binary options arbitrage strategy. These include advanced platforms, educational resources, sign-up promotions, demo accounts, and trading signals, among others.
Binary options brokers that support arbitrage trading should advertise any additional features on their websites, so be sure to review these before signing up.
Add Funds To Your Account
Once you have chosen your binary options brokers and platforms, you need to fund your accounts. Some binary options arbitrage strategies are time sensitive, so ensuring your account has sufficient capital in it to make your move in the market is critical.
Check processing times when depositing and account for any currency conversions if trading an asset that is not denominated in GBP.
Enter The Market
After you have chosen your binary options arbitrage strategy and have deposited capital into your account, you are ready to enter the market. It is a good idea to test strategies in a binary options broker’s demo account so you can get a feel for the platform and market without risking any real money.
Each binary options arbitrage strategy should be supported with in-depth research and analysis. Since binary options are derived from an underlying asset, there should be a significant amount of market information available when plotting your next move. It is also important to employ a strong risk management strategy.
Advantages Of Binary Options Arbitrage
There are several benefits to trading binary options arbitrage:
- Out Of Market Trading – Many binary options are available to trade outside of typical market hours, and this can present arbitrage opportunities.
- Capped Losses – Losses with binary options are limited to the price of the contract. This is different to other asset classes where traders are exposed to the risk of the asset’s price falling in tandem with their losses. Furthermore, some arbitrage trades aim to negate that risk entirely – if successful the trader should make a profit regardless of the price movement.
Disadvantages Of Binary Options Arbitrage
There are also some downsides to binary options arbitrage trading:
- Limited Opportunities – Arbitrage strategies are born from the markets being inefficient and opportunities to find differences in the price of the same asset are limited.
- Multi-Broker Access – The most common way to execute a binary options arbitrage strategy is by signing up with multiple brokers to take advantage of differences in prices and payouts. However, managing multiple accounts can mean more effort and admin.
- High Payout Required – To maximise arbitrage opportunities, high payouts are required to cover the cost of premiums on both a call and put contract. Significant capital may also be needed to trade in high volumes.
Last Thoughts On Binary Options Arbitrage
Binary options arbitrage offers traders a dynamic way to generate profits by capitalising on market inefficiencies. Investors can make money from pricing differences, timing differences and opposing assets reacting to other assets’ changes in value. However, arbitrage opportunities are limited due to most markets being relatively efficient, so a binary options trader will often need to trade in high volumes to generate significant returns.
What Is Binary Options Arbitrage?
Binary options arbitrage is using binaries to capitalise on market imperfections relating to pricing differences, timing differences and changes in the value of assets if they are influenced by price movements of other assets.
Is It Possible To Trade Binary Options Arbitrage?
Yes, it is. Although the opportunities can be limited, there are chances for traders to make money in the financial markets using this strategy. Note, you will also need to check that your binary options broker doesn’t prohibit arbitrage trading systems.
Are Binary Options Arbitrage Strategies Legal?
Binary options arbitrage is legal, but be aware that binary options have been restricted in many key trading jurisdictions, including the UK. Similar alternative products such as digital contracts are available, and UK traders can still sign up with reputable binary options brokers, though the FCA will not regulate them.
Is Binary Options Arbitrage Trading Safe?
This trading strategy is relatively safe if used and tested adequately. However, reports show some binary options traders have been scammed out of their deposits by fake brokers with false platforms. Traders should look for brokers who are well-reviewed and trusted. We have compiled a list of the top binary options brokers.
Does Anyone Make Money With Binary Options Arbitrage?
There is the opportunity to make money using this trading strategy, though market imperfections are limited and payouts can be low. You will need to shop around to find the right combination of broker, asset, payout and premium.