I had a conversation with a friend the other day that disturbed me. He was having trouble with his broker stemming from a deposit bonus he had received. I am not a fan of the bonus structure and gave him advice to that effect. If you are not aware, deposit bonuses are a common feature of binary options brokers today. The brokers use them as an attraction to get new traders to open and fund accounts and they work. Who wouldn’t want some free money but the question is, is it really free? There are several reasons why bonuses are not as free as they seem and why you may not want to accept one.
Trade Minimums – Every bonus comes with a trade minimum. This a dollar amount you must reach before the bonus monies can be withdrawn from your account. The minimum is based on your original deposit and the bonus so if you deposit $2000 and get a 50% bonus the minimum will be based on $3000. On average the trading minimum will be between 20 and 30 times the total account value. I have seen some as low as 15 times and some as high as 40 or 50 times the total account value. This means that an account with a total value of $3000 will have to make trades totaling $45,000 before the bonus is yours. I like to trade 1% of my account at a time to ensure that no one trade can damage my account. In a $3,000 account that means making trades of $30 at a time, $45K divided by $30 is 1500 trades. Of course, you can make bigger trades in order to clear the minimum faster but that can also lead to catastrophic losses.
Time Limits – Some, but not all, deposit bonuses have a time limit. This is usually something like 30, 60 or 90 days. This means that you have to reach the trade minimum before the time limit is up before you can make a withdrawal. I do not want to imply that any of you are not able to turn $3,000 into $45,000 but I would like you to consider your chances of doing that within 30 days. I trade a lot but I never like being forced into making a trade or trading more than my system allows. The time limit may be another reason to shoot for the stars, trading more often or with larger amounts than you normally would and adding risk to your portfolio.
Withdrawals – Bonuses make withdrawing money from your account difficult. Some brokers, the shadier ones, will not let you withdraw any money until you meet the minimum trade limit. Brokers that do will not let you withdraw any part of the bonus or profits based on the bonus. In either case clauses in the terms will usually lead to you forfeiting the entire bonus and all profits with any withdrawal request prior to meeting the withdrawal requirements. I don’t know about you but if I trade my $3,000 account up to $10,000 or $15,000 I am definitely going to want to take some out. Not a lot but enough so that I can enjoy the fruits of my labors if you know what I mean.
This broker (OptionYard) says that bonuses can not be redeemed for cash value, very shady.
Free Sign Up Bonus – I have been seeing the free $50 sign up bonus more and more. This is a “free” bonus you get when you sign up to an account and does not require a deposit. Except that it does. The only way to get this bonus is to deposit money and then meet the bonus requirement. You may also get an additional deposit bonus on top of the sign up bonus, which means the bonus requirements could be quite high.
Bonuses are often applied to accounts automatically by the broker once they are funded so be wary. In order to opt out you, the trader, are responsible for contacting their account representatives. Some brokers will also offer other bonuses from time to time so be sure to read the terms and conditions before accepting them.