OPTIONS BROKERS RATING FORMULA v.3.5

What is it about?

The introduction of Rating Formula v.3.5 serves an important purpose: to provide a fully objective framework for evaluating and rating binary options brokers. Until now, broker ratings relied on individual user reviews, which are often unreliable. Many user ratings are dishonest, as anyone with an incentive can leave a fake review. Evidence of this is seen in extreme ratings like 10/10 or 1/10, which are unlikely to come from genuine users.

This is why the Rating Formula Series was created. By rating brokers objectively, users can choose the service that best fits their needs. They can also discover trading aspects they weren’t aware of, improving their overall knowledge.

🕰️ History:

The first and second versions of the Rating Broker Formula were applied to online Forex brokers. Version 3.0 was adapted for binary options brokers. More information here:

» Rating Formula V.5.0 at TradingCenter.org

» Rating Formula V.4.0 at TradingCenter.org

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Rating Formula V.3.5 (Binary Options Brokers)

The rating formula v.3.5 is built by linking together four major trading factors:

Perhaps in the future, global regulatory authorities will adopt a similar formula to ensure online brokers operate in ways that benefit their clients. Regulators could also use it to push brokers to minimize systemic risk in the industry. Scam brokers not only harm traders but also increase the overall systemic risk, similar to how the 2008 financial crisis in the US became a global crisis. The rating formula is designed to help traders and reduce systemic risk in the market. This is why we believe that this method of rating brokers will eventually become an industry standard.

• Max Safety of Funds
• Min Commissions and Fees Charged
• Max Number of Trading Options
• Max Technological Efficiency

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FACTOR (1) Safety of Funds, Weight 25%

When trading online, protecting your funds is a top priority. Financial companies—whether investment firms or brokerages—often take on more risk than they can handle to increase profits. This goes completely against their clients’ interests, as clients naturally want their funds to be safe. To assess brokerage credibility, several rating factors were identified and included in Rating Formula 3.5.

Table-1: Fund Protection Analysis

1. BINARY BROKER RELIABILITY	25.00%	FACTOR-1 ANALYSIS	CALCULATION METHOD
1.1 Headquarters Base	10.00%	General Offshore = 0.0%, British Virgin Islands = 3.0%, Cyprus = 6.0%, Ireland, Australia = 8%, USA, UK, Germany, France, Switzerland = 10.0%	Selection
1.2 Years in the Market	8.00%	0-1 Years = 0.0%, 1-3 Years = 4.0%, 3-5 Years = 6.0%, 5+ Years = 8.0%	Selection
1.3 Platform Security (Encryption)	4.00%	Platform SSL Encryption 128 bit = 3.0%, 256 bit = 4.0%, No SSL Encryption = 0%	Selection
1.4 Customer Service Quality	3.00%	24/7 = +1.0%, 24/6 = +0.5%, 24/5 = 0%, eMail = +1.0%, Phone = +1.0%. Live Chat = +1.0%, Skype = +1.0%	Accumulation
(+) Adjustments:-Note that Factor-1 max rating = 25.0%
1.5 Level of Regulation	(+5% max)	FSC (BVI) = +1.0%, CYSEC = +3.0%, CBI = +4.0%, ASIC = +4.0%, BaFIN = +5.0%, FSA (UK) = +5.0%, FINMA = +5.0%	Adjustment
1.6 US Traders	(+2% max)	Yes = +2.0% or No = +0%	Adjustment

FACTOR-1 ANALYSIS:

I) MAIN RATING

1.1 Headquarters Base, {10%}

The country where a binary options broker is headquartered influences the quality and reliability of its balance sheet. Fees and penalties from regulatory authorities create a strong incentive for brokers to operate legitimately and protect client funds. For this reason, the Rating Formula gives significant consideration (weight 10%) to the broker’s country of headquarters.

General Offshore = 0.0%, British Virgin Islands = 3.0%, Cyprus = 6.0%, Ireland, Australia = 8%, USA, UK, Germany, France, Switzerland = 10.0%

1.2 Years in the Market, {8%}

Many years in the market indicate that a binary options company operates under a successful business model and can manage overall business risk over time. Since binary options were introduced in 2008, the formula gives a maximum rating weight of 8% to brokers established that year.

0-1 Years = 0.0%, 1-3 Years = 4.0%, 3-5 Years = 6.0%, 5+ Years = 8.0%

1.3 Platform Security (4%)

When sharing personal information online (e.g., ID number or credit card), it is crucial to ensure it stays secure from fraud. How a broker encrypts your data using SSL technology is extremely important.

Platform SSL Encryption 128 bit = 3.0%, 256 bit = 4.0%, No SSL Encryption = 0%

1.4 Customer Service Support Quality {3%}

Good customer service is essential. A broker’s quick and reliable response can directly impact a trader’s profits, as time is money when trading derivatives. Since traders and brokers are often geographically distant, online support is critical.

24/7 Customer Service = 1.0%, 24/6 Customer Service = 0.5%, 24/5 Customer Service = 0%, eMail Support = +1.0%, Phone Support = +1.0%. Live Chat Support = +1.0%, Skype Support = +1.0%

II) ADJUSTMENTS

The following adjustments are applied to refine the results. In any case, the maximum value for Factor-1 remains 25.0%.

1.5 Regulation, (+5%)

Binary options trading is a young industry, launched in 2008, and regulation is not yet universal. Some brokers have obtained regulation, mainly from the FSA UK and CySEC. This factor adds up to 5% to the rating for brokers supervised by trusted authorities. If a broker is regulated by multiple authorities, the ratings are cumulative.

FSC (BVI) = +1.0%, CYSEC = +3.0%, CBI = +4.0%, ASIC = +4.0%, BaFIN = +5.0%, FSA (UK) = +5.0%, FINMA = +5.0%

1.6 US Traders / Residents Allowance, (+2%)

Allowing US residents indicates compliance with strict US regulations introduced after 2008, adding credibility to a broker’s operations.

Yes = +2.0% or No = +0%

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FACTOR (2) Competition, Weight 40%

The level of competition in the binary options industry is very important for traders. High payout and refund rates play a major role in the success of trading binary options online.

Table-2: Competition Analysis

2. BROKERAGE COMPETITION	40.00%	FACTOR-2 ANALYSIS	CALCULATION METHOD
2.1 Bonus	8.00%	Bonus > 40% = 8.0%, >35% = 7.5%, >30% = 7.0%, >25% = 6.0%, >20% = 5.0%, >15% = 3.0%, >10% = 2.0%	Selection
2.2 Commissions on Deposits / First Month Withdrawal	2.00%	Yes = 0 or No = 2.0%, One Free Withdrawal per month = 1.0%	Selection
Payout Rate
2.3 Max Payout Rate	20.00%	Max Payout Rating = (Max Payout Rate) x 2} / 10	Actual
2.4 Average Payout Rate	10.00%	Average Payout Rating = (Average Payout Rate) / 10	Actual
(+) Adjustment: -Note that {2.3 + 2.4} max rating = 30.0%			Adjustment
2.5 Refund Rate	(+5% max)	For Refund 15% = +5%, Refund 10% = +3.0% and Refund 5% = +1.5%	Adjustment

FACTOR-2 ANALYSIS:

I) MAIN RATING

2.1 Trading Bonus {8%}

The higher the bonus offered by a binary options broker, the more funds a trader has available. Note that to receive a bonus, traders may need to generate trading volumes up to 20 times or more the bonus value. This factor may be refined in future versions.

Bonus > 40% = 8.0%, >35% = 7.5%, >30% = 7.0%, >25% = 6.0%, >20% = 5.0%, >15% = 3.0%, >10% = 2.0%

2.2 Deposit / Withdrawal Commissions, {2%}

Commissions on deposits and withdrawals reduce trading funds, so this factor is included in the ratings. Brokers that charge no commissions receive a 2.0% advantage. If a broker offers one free withdrawal per month, they receive a 1.0% rating.

Yes = 0 or No = 2.0%, One Free Withdrawal per month = 1.0%

2.3 Highest Payout Rate, {20%}

The payout rate is the most important factor in binary options trading. Factors 2.3 and 2.4 together make up 30% of the rating, with the maximum payout rate weighted at 20%. To calculate: divide the payout rate by 10, then multiply by 2. For example, a payout of 85% earns a 17.0% rating: (85 ÷ 10) × 2 = 17.0%.

Max Payout Rating = (Max Payout Rate) x 2} / 10

2.4 Average Payout Rate, {10%}

The average payout rate shows a broker’s general competitiveness. In the rating, the highest payout is more important than the average, as traders opening multiple accounts will benefit from the highest payout.

Average Payout Rating = (Average Payout Rate) / 10

II) ADJUSTMENT

The following adjustment refines the results. The maximum value of the Payout Factor (Factors 2.3 and 2.4) is 30.0%.

2.5 Refund Rate, (+5%)

The refund rate adds extra value to a trader’s profit potential. This factor can contribute up to 5% to the overall rating of a binary options broker.

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FACTOR (3) Trading Options, Weight 25%

Every trader has a unique profile and different needs, so both the quantity and quality of trading options are highly valued in our ratings. The number of trading assets offered by a binary options broker is the most important factor, but other features are also considered, such as the number of deposit and withdrawal methods and the availability of a demo account.

Table-3: Trading Options

3. TRADING OPTIONS	25.00%	FACTOR-3 ANALYSIS	CALCULATION METHOD
Asset Index {max rating=18%}
3.1 Forex Currencies	4.00%	(Number of Currencies / 100) %, max=40 Currencies	Selection
3.2 World Stocks	4.00%	(Number of Stocks / 100) %, max=40 Stocks	Selection
3.3 World Indices	4.00%	(Number of Indices / 50) %, max=20 indices	Selection
3.4 Gold / Metal Trading	3.00%	Gold Trading = 2.0%, any other Metal = +1.0%	Accumulation
3,5 Oil Trading	1.50%	Oil Trading Available Yes = 1.5%, No = 0%	Selection
3.6 Commodities Trading	1.50%	Commodity Trading Available {Sugar, Wheat etc} = 1.5%, No = 0%	Selection
(+) Adjustment:
3.7 Trading Index Variety Points	(+3.0)	If Trading more than 50 assets = +1.5% and if more than 100 assets = +3.0%	Selection
More Trading Options
3.8 Demo / Practice Account	3.00%	Demo Account Yes = 3.0% or No = 0%	Selection
3.9 Number of Deposit Methods	2.00%	For each deposit method available = 0.5%, max = 4 methods	Accumulation
3.10 Number of Withdrawal Methods	2.00%	For each deposit method available = 0.5%, max = 4 methods	Accumulation

FACTOR-3 ANALYSIS:

I) ASSET INDEX MAIN RATING

3.1 Available Number of Currency Pairs, {4%}

Forex trading, especially the EUR/USD pair, is very popular. The more Forex pairs a broker offers, the greater the trading opportunities. The rating is calculated by dividing the number of available currencies by 10, with a maximum of 40 currencies contributing up to 4.0%.

(Number of Currencies / 10) %, max=40 Currencies

3.2 Available Number of World Stocks {4%}

Trading equities, including stocks like Apple, Facebook, and Google, is popular among binary options traders. The rating is calculated by dividing the total number of available stocks by 100, with a maximum of 40 stocks contributing up to 4.0%.

(Number of Stocks / 100) %, max=40 Stocks

3.3 Available Number of Indices {4%}

Trading indices like the Nasdaq and DAX helps traders build experience. The rating is calculated by dividing the number of available indices by 50, with a maximum of 20 indices contributing up to 4.0%.

(Number of Indices / 50) %, max=20 indices

3.4 Gold & Metal Trading {3%}

Trading metals like gold and silver has grown in popularity. Gold trading reduces overall portfolio risk and receives a rating of 2.0%. Additional metals receive an extra 1% each.

Gold Trading = 2.0%, any other Metal = +1.0%

3.5 Oil Trading {1.5%}

Oil trading is popular and receives a rating of 1.5%.

Oil Trading Available Yes = 1.5%, No = 0%

3.6 Commodities and Energy, {1.5%}

Availability of other commodities beyond metals and energy, such as sugar or cotton, is rated at 1.5%.

Commodity Trading Available {Sugar, Wheat etc} = 1.5%, No = 0%

II) ADJUSTMENT

These adjustments refine the asset index rating (Factors 3.1 to 3.6), which cannot exceed 18% of the total rating.

3.7 Overall Variety of Assets {+3%}

Brokers specializing in a particular asset type may receive extra points. For example, a Forex-focused broker with more than 60 pairs receives additional rating points.

If trading more than 50 assets = +1.5% and if more than 100 assets = +3.0%

3.8 Demo / Practice Account Availability {3%}

A demo account benefits new traders by saving time and money before opening a real account.

Demo Account Yes = 3.0% or No = 0%

3.9 Deposit Methods, {2%}

A wide range of deposit methods shows a broker’s flexibility to meet client needs.

For each deposit method available = 0.5%, max = 4 methods

3.10 Withdrawal Methods, {2%}

A variety of withdrawal methods is equally important.

For each deposit method available = 0.5%, max = 4 methods

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FACTOR (4) Technology & Innovation, Weight 10%

Technological efficiency is crucial for successful online trading.

Table-4: Technology and Innovation

4. BINARY TECHNOLOGY	10.00%	FACTOR-4 ANALYSIS	CALCULATION METHOD
4.1 Up & Down Options	2.00%	Yes = 2.0% or No = 0%	Selection
4.2 One Touch / Boundary Options	2.00%	Yes = 2.0% or No = 0%	Selection
4.3 Rollover Feature	1.50%	Yes = 1.5% or No = 0%	Selection
4.4 Early Closure	1.50%	Yes = 1.5% or No = 0%	Selection
4.5 Mobile Devices Supported	3.00%	iPhone=1.5%, Android=1.5%, Any other Device = +1.0% (iPad, Windows Mobile, Blackberry)	Accumulation

FACTOR-4 ANALYSIS:

4.1 Up & Down Options {2%}

The most common form of binary options trading.

Yes = 2.0% or No = 0%

4.2 One Touch Binary Options {2%}

One-Touch or boundary options allow traders to secure profits early. They pay out if an asset reaches a target price before the set expiration.

Yes = 2.0% or No = 0%

4.3 Rollover Feature Availability {1.5%}

Rollover lets traders extend the trade expiration, giving more flexibility.

Yes = 1.5% or No = 0%

4.4 Early Trade Closure {1.5%}

The ability to close trades early is important for managing risk.

Yes = 1.5% or No = 0%

4.5 Mobile Trading {3%}

Mobile trading is the future. Supporting more devices allows traders to execute trades anytime, anywhere.

iPhone=1.5%, Android=1.5%, Any other Device = +1.0% (iPad, Android, Windows Mobile)

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TOTAL RATING {FACTORS 1, 2, 3, and 4}

Total Rating: By combining all four parts of the rating formula, we calculate the total rating for each binary options broker.

TOTAL RATING=

Reliability / Safety of Funds (25.0%) +

Competition / Trading Cost (40.0%) +

Quality and Quantity of Trading Options Offered (25.0%) +

Technology Offered(10.0%)

= (100.0%)

 

■ Binary Options Rating Formula v.3.0/3.5 (2012-2013)

Giorgos Protonotarios (c), Investment Consultant / Financial Analyst, MSc in “International Banking & Finance”

For TradingCenter.org (c)