One of the biggest incentives which binary options brokers provide to new customers is bonuses. How many times have you seen an advertisement for a binary options website which promises you something like this?
Deposit today and get $500 of free trading money!
Open an account now and receive a 100% match bonus up to $5,000!
Sounds amazing, right? All that free money, just for opening an account? Why wouldn’t everyone in the world sign up for a binary options account if it were that easy to make free money? Because it isn’t really free money with no strings attached. There are two types of bonuses, cash bonuses and leverage bonuses. The vast majority of binary options bonuses fall under the latter category and they have to be earned. Find out if our best binary options brokers offer bonuses.
What is a Cash Bonus?
Hearing about a cash bonus may give you the same feeling as a money tree!
A cash bonus is a bonus which is cash, pure and simple. It is available for you to use on trading or withdraw immediately. In effect, it is yours from the moment you receive it. Very few bonuses offered by brokers fall under this category. Referral bonuses are sometimes structured this way. If you get a friend to sign up for an account at a broker and deposit funds, you and your friend may each receive $50 in cash, for example. Sometimes other special promotions fall under this category as well.
Occasionally you might find a match bonus structured as cash. In these situations, the bonus will likely still have to be earned. For example, a broker may offer you a match bonus once you have achieved a certain turnover in funds. After you trade the amount of the bonus a certain number of times, the money may be credited to you as cash. This is not a common setup however. Far more common is what we describe below.
What is a Leverage Bonus?
Leverage bonus may feel like a double-edged sword – – money you have but can’t quite touch yet
Almost all match bonuses are leverage-based bonuses and not cash bonuses. The money will be deposited into your account but kept separate from your main funds. It is available to trade with but not to withdraw and use as you see fit. You will have to achieve a certain turnover of trading volume (usually around 30x) before the money converts to cash. In the meantime, it adds leverage to your trading, because you are trading a larger volume of money than you actually have.
Leverage is often called a double-edged sword because it has the power to make or break you. With leverage on your side, you can control more money than you have, which means you can trade as though you have already won the amount of money included in the bonus. But what if you start losing trades with leverage? Then it’s like you are losing money you do not have. That will not come out of the bonus you have not yet received as cash; it will come straight out of your own trading balance. Trading with a bonus can blow your account if you do not know what you are doing.
Should You Use a Bonus?
Do you feel like a cash bonus or leverage bonus is best for you?
There is no right or wrong answer here. Bonuses are legitimate offers that can bring value to your trading, but they can also result in monetary loss, and it can happen a lot faster than you think. You should make your decision about accepting a bonus based purely on what you are comfortable with. Maybe a bonus is an exciting offer to you because you want to experience the thrill of having all that money on the line and the possibility of instantly winning it big or losing it all. But maybe you are more of a conservative trader, and you want to only trade a very specific percentage of your account on each trade. In that case, a bonus would only interfere with your money management plan.
You can choose not to accept a bonus at most broker websites and still trade with the broker. If you have questions about how bonuses work, start by reviewing the bonus terms and conditions (sometimes located in the same file as the other terms of service, sometimes located in a separate document). You can also get in touch with customer service if you still do not fully understand how bonuses work.
Photo Credits: money tree, scale on wall, man in forest