Broker Price Feeds: Where Do They Come From?

Broker Price Feeds: Where Do They Come From?

There are a number of elements to consider when selecting a binary options broker, one being the price feed that is used to supply the asset prices within the trading platform. The prices found within a platform may not match the prices being provided by an outside source, a fact which can certainly cause confusion for traders. Those who start to trade without understanding how and why prices differ may certainly encounter problems, and these problems could prove costly.

It should first be noted that brokers are not actually breaking any rules in providing their own prices. While this information may appear to be misleading, the responsibility of the broker is to simply provide pricing, although many do make it clear where their prices come from. In some cases, prices are pulled from more than one source, which can add to the confusion. Any trustworthy broker will be more than happy to provide information in regard to where their platform prices come from, along with what calculations are used to arrive at closing prices for each purchased option.

Some brokers do pull their data feed from a reliable source such as Reuters, but what if yours does not? At a base level, this will mean that all of your analysis and investment decisions will need to be based upon the prices provided by your broker, and not the prices provided by any other source. It will not be safe to take action based upon asset prices being provided by television news sources, online financial websites, or any other resource that provides pricing information. Doing so will skew analysis findings, and can certainly cause financial loss.

In addition to confirming where the provided price-feed comes from, take the time to ask your binary options broker about their price calculations. Even when prices do come from a trusted source such as Reuters, an expiry rate rule is likely to apply. The most common rate rule is Bid + Ask /2. Bid and ask will both be the last known price prior to the conclusion of the expiry time. When this calculation is used, the bid and ask prices will be added and then divided by two. If “Last Quote” is listed, then the price will be just that – the last known price before expiry, as provided by the feed source.

Most brokers are upfront about these calculations, as well as the source of their price feed. Some even provide a specific page on their website dedicated to the topic. If not, it will be the task of the trader to contact customer service and inquire about such matters. Far too often, first-time traders will select a broker and begin to trade without having these questions answered. Transparency is a must, and any broker that is not willing to answer these questions should be not be considered a reliable choice.

The bottom line is that discrepancies do exist among price feeds, and these absolutely cannot be ignored. It will not be possible to make educated trade decisions if you are viewing prices that differ from those listed within the trading platform that you are using. Both novice traders, as well as those who have been trading for a while, but are looking for a new binary options broker are advised to learn as much as possible about the provided price feed before making any decisions.

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