OPTIONS BROKERS RATING FORMULA v.3.5

What is it about?

The introduction of the Rating Formula v.3.5 is serving an important mission. This mission is to provide a 100% objective framework to evaluate and rate the world's binary options brokers. Until today, brokerage services were rated by individual users. But most of these user ratings in the trading industry are not honest. Anyone who has an incentive to do so may produce a fake rating/review. Prove comes from the fact that most individual user ratings are given extreme values such as 10/10 or 1/10. It is hard to believe that these extreme ratings have been produced by honest users. This is why the Rating Formula Series was designed in the first place. By rating brokers in an objective way users are able to choose the brokerage service that suits them best. Furthermore, users are able to identify trading aspects that they weren't aware of and thus enhance their knowledge upon trading.

History:

The first and the second versions of the Rating Broker Formula were applied to Online Forex Brokers. Version 3.0 of the formula was applied to Binary Options Brokers. More information here:

» Rating Formula V.5.0 at TradingCenter.org

» Rating Formula V.4.0 at TradingCenter.org

 

Rating Formula V.3.5 (Binary Options Brokers)

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

Maybe someday in the future, world regulatory authorities will use a similar formula to control and force online brokers to operate in a way that favors their clients. Furthermore, regulators will be able to force online brokers to act in the direction of minimizing the whole systemic risk of the industry. Scam brokers are not just harming traders, but they are also adding an extreme level of systemic risk to the trading industry. The same way that we have witnessed the great financial crisis of 2008 in the US, which eventually became a world crisis. The rating formula is designed to help traders but also to help the system to reduce the incorporated level of systemic risk. That is why we believe that this way of rating brokers sooner or later will become an industry standard.

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

 

FACTOR (1) Safety of Funds, Weight 25%

When trading online, ensuring the safety of your funds becomes a major issue. Financial companies of all types (investment companies, brokerages, etc) tend to accept more risk than they can really afford in order to leverage their profit potential. That is 100% against the interest of their clients who are by nature risk-averse concerning the safety of their funds. In order to measure brokerage credibility, a number of rating factors were identified and applied to the rating formula 3.5.

Table-1: Safety of Funds Analysis

1. BINARY BROKER RELIABILITY	25.00%	FACTOR-1 ANALYSIS	CALCULATION METHOD
1.1 Headquarters Base	10.00%	General Offshore = 0.0%, British Virginia 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 maintains headquarters determines to a certain extent the quality and consistency of its balance sheet. Fees and penalties imposed by supervising authorities provide a strong incentive for Options Brokers to operate legitimately without risking their client funds. That is why the Rating Formula takes into a strong consideration {weight 10%} the country of the broker's headquarters.

General Offshore = 0.0%, British Virginia 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 that it is proven capable of managing the whole enterprising risk over time. Binary Options were introduced in 2008, so the Formula weights a maximum rating of 8% on the brokers who were found in 2008.

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 you are spreading your personal information throughout the internet {ie ID number or Credit Card Number} you must be sure that this important information will stay secure away from fraud. The way a Broker encrypts your information using SSL technology is absolutely important.

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

1.4 Customer Service Support Quality {3%}

The importance of good customer service support is obvious. The quick and reliable response of a broker to a trader's demand means money for the trader. Time is money when trading derivatives. Traders and brokers are very far away from each other at a geographical level so it is important that they stay close on an online level.

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 ratings are made in order to adjust the results. Note that in any case, the maximum value of the Factor-1 rating is 25.0%.

1.5 Regulation, (+5%)

As the Binary Options Trading is a very young industry born in 2008, regulation is not yet an industry standard. Lately, some Binary Options Brokers have managed to apply for regulation {mainly to the FSA UK and the CySEC} and that is why this factor is also incorporated into our ratings. An extra rating (up to 5%) is added to those Binary Options Brokers who are supervised by a trusty regulatory authority. If a broker is regulated by two or more authorities the rating outcome is the summary of all the individual authority ratings.

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%)

The acceptance of US residents indicates compatibility with US regulation, which after 2008 became strict for financial companies. US regulation adds credibility to a Binary Options Broker operation.

Yes = +2.0% or No = +0%

 

FACTOR (2) Competition, Weight 40%

The level of competition in the Binary Options Industry is very crucial for traders. High payout and refund rates determine to a high extent 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 larger are the trader’s available funds. Of course, you should notice that in order to receive a bonus you must create trading volumes up to 20 times or more the value of the bonus. This factor will maybe be incorporated into 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%}

Deposit and Withdrawal commissions are progressively reducing trading funds, so factor 2.2 is incorporated in our ratings. Binary Options Brokers who are not charging any commissions are rated beneficially by 2.0% compared to other brokers who are charging commissions and fees. If a broker provides its clients with one single free withdrawal per month then he receives a rating of 1.0%.

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

2.3 Highest Payout Rate, {20%}

The Payout Rate is by far the most important factor when trading binary options. Eventually, factors 2.3 and 2.4 are weighed 30%. The maximum payout rate of each binary options broker is weighed at 20%. In order to calculate it, we divide the actual payout rate by 10, and after we multiply the result by 2. Forex example for a payout of 85% a broker will earn 17.0% rating {(85% / 10) X 2}

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

2.4 Average Payout Rate, {10%}

The Average Payout Rate is reflecting the broker's general ability to compete. In our ratings, we value the highest payout rate and not the average payout rate. That is because a trader that will open multiple trading accounts will take advantage of the highest and not the average payout rate.

Average Payout Rating = (Average Payout Rate) / 10

II) ADJUSTMENT

The following rating is made in order to adjust the results. Note that in any case, the maximum value of Payout Factor {Factors 2.3 and 2.4} is 30.0%.

2.5 Refund Rate, (+5%)

The rate of Refund adds extra value to the profit potential of each Binary Options Trader, so a factor of 2.5 may add up to 5% in the overall rating of any Binary Options Broker.

 

FACTOR (3) Trading Options, Weight 25%

Every trader has a different profile with different needs so the quantity and the quality of trading options are highly weighed in our ratings. The number of trading assets offered by the Binary Options Broker is certainly the most crucial factor but other trading options are rated too, like 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, and especially the EUR/USD pair, is very popular among traders nowadays. The higher the number of Forex pairs available, the higher the potential for traders to exploit trading opportunities. The calculation is made simple and fair by dividing the total number of available currencies by 100, given a maximum number of 40 currencies which weigh a maximum of 4.0% in rating value.

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

3.2 Available Number of World Stocks {4%}

Trading equities (Stocks & Indices) is quite popular among Binary Options Traders. Especially as concerns shares of companies like Apple, Facebook, and Google. The calculation is made by dividing the total number of available shares by 100, given a maximum number of 40 shares which weigh a maximum of 4.0% in rating value.

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

3.3 Available Number of Indices {4%}

Trading world indices like Nasdaq and Dax is sometimes the best way to accumulate your trading instinct. The calculation is made by dividing the total number of available indices by 50, given a maximum number of 20 indices which weigh a maximum of 4.0% in rating value.

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

3.4 Gold & Metal Trading {3%}

Trading metals like Gold and Silver are becoming very popular in the last decade. As concerns gold, the existence of gold-based assets in a portfolio reduces the overall risk and constitutes a way of differentiating long-term portfolio value. That is why gold trading receives an individual rating of 2.0%. The availability of more metals receives an extra rating of 1% per metal.

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

3.5 Oil Trading {1.5%}

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

Oil Trading is very popular and receives a 1.5% in terms of rating

3.6 Commodities and Energy, {1.5%}

This factor weighs the availability of more commodities than Energy and Metals {for example sugar or cotton}. This factor receives also a 1.5% rating.

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

II) ADJUSTMENT

The following factor adjusts the results of the asset index {Factors 3.1 to 3.6}. In any case, the asset index rating can't exceed 18% in the total rating.

3.7 Overall Variety of Assets {+3%}

The reason for this adjustment is to rate brokers that are highly specialized in trading a particular type of asset. For example, a binary options broker who is specialized in trading Forex and provides more than 60 pairs will not take only a 4% rating but also a +1.5% rating.

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

3.8 Demo / Practice Account Availability {3%}

The existence of a practice/demo account adds value to the trader that wants to deposit funds for the first time. Time and money may be saved using the demo account before starting a new real trading account.

Demo Account Yes = 3.0% or No = 0%

3.9 Deposit Methods, {2%}

A wide variety of Deposit Methods means a broker is willing to become more suitable to his customer's needs.

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

3.10 Withdrawal Methods, {2%}

The wide variety of withdrawing methods is of equal importance.

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

 

FACTOR (4) Technology & Innovation, Weight 10%

Technological efficiency is very important when trading online.

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 / Boundery 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 way to trade binary options.

Yes = 2.0% or No = 0%

4.2 One Touch Binary Options {2%}

One-Touch Binary Options which are also known as boundary options provide traders with the ability to early capitalize their gaining. One-Touch Binary Options earn a payout if an asset reaches a targeted price even before the predefined expiration.

Yes = 2.0% or No = 0%

4.3 Rollover Feature Availability {1.5%}

Rollover provides traders the ability to widen their trading time frame. Rollover actually allows a trade expiration to be postponed and therefore constitutes an advantage for binary options traders.

Yes = 1.5% or No = 0%

4.4 Early Trade Closure {1.5%}

The ability of early close simple trades is very important.

Yes = 1.5% or No = 0%

4.5 Mobile Trading {3%}

Mobile trading is not just a trend nowadays, it is simply the future of trading. Every mobile device that is supported means that more traders will be able to execute trades anywhere and anytime.

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

 

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

Total Rating: By adding the 4 parts of the rating formula, we get the Total Rating of each Binary Options Broker.

TOTAL RATING=

Realibility / 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”