Understanding Payout Rates in Binary Options
What is Payout Rate?
When you choose binary options brokers, you may hear the term “payout rates”. Payout rate is the return of profit percentage when you predict the outcome of a trade accurately.
The payout rates are directly correlated to the profit margin and they vary depending on brokers. Therefore, they should be considered as an important factor when you determine which broker you would like to trade with.
For example, you predict that EUR/USD will rise at the time of expiration and you invest in $100. If your prediction were accurate, you will receive a total amount of $180 (i.e., $100×180％＝$180) and $80 is the amount of profit that you will receive. On the other hand, if your prediction were inaccurate, you will loss you initial investment (i.e., $100).
Binary options are simple options contracts in which you receive a fixed return rate and the risk is pre-determined. They are different from forex trading in which the amount of profit and the amount of loss are influenced by the fluctuations of market prices. In addition, there is no need to worry about a great loss in investment and additional margin deposit in case of unexpected fluctuations.
Investment is always thought to be accompanied with great risks and losses. In case of binary options, the greatest loss is the amount of money that a trader invested in and it is impossible to have losses greater than the amount of money at hand. Therefore, it is said that it is easy to control and minimize the risks in binary options trading.
The Winning Percentage Needed to Make a Profit from Payout Rates
It is mentioned above that payout rates should be considered as an important factor when you determine which broker you would like to trade with. In order to make a gross profit from payout rates, it is also important to note that the necessary winning percentage changes.
※ Assuming that the same amount of money is invested in each trade.
Of course, this does not apply to the case where the investment amount changes in each trade. In the case where the same amount of money is invested in each trade, the necessary winning percentage needed differs. In binary options, there are only two alternatives for a trader to choose from. The win/loss percentage thus should be 50%. However, if take into consideration the payout rates, a 50% win rate is not enough to make a profit on the whole.
That is to say, the lower the payout rates, the more the conditions are unfavorable to traders. In the case of a long-term investment, if you do not investigate the payout rates and choose brokers carefully, there is a possibility that you will loss the profit you made due to the low payout rates.
Please note that the difference in the win/loss rate is the boundary line between making a profit and a loss.
Compare the Payout Rates of High & Low Binary Options or 60 Second Options
For Touch & No Touch Options and Range & Boundary Options, there are a lot of binary options brokers offering high payout rates. However, it is very difficult to make accurate predictions when you trade these types of binary options.
There is a limited time that a trader can make profits with Touch & No Touch Options and Range & Boundary Options. Therefore, they are not appropriate to be used as major trading types.
High & Low Binary Options and 60 Second Options are most commonly used for trading binary options. When you compare payout rates, it is better to focus on and compare the payout rates of these two types offered by brokers.
For those types of binary options with high payout rates, such as Touch & No Touch Options and Range & Boundary Options, they can be traded effectively when large movements in the markets happened after the release of economic indicators and speeches by famous people. Therefore, it is better to keep in mind that, as a strategy, you can trade these binary options when large movements in the markets happen.
Novice Traders Choose Brokers with High Payout Rates
For those who are not familiar with binary options trading, it is usually difficult to stabilize a winning rate. Therefore, please keep in mind to find a broker with high payout rates. If you choose brokers with high payout rates, it is possible to minimize the risks of investing.
It is very likely that a novice trader will soon lose all the investment if he trades with a large amount of money at a time. To trade and practice with a demo account is a good method to learn risk management. In the case of real money trading, unless you are very familiar with binary options trading, it is better that you place a trade with a small amount of money.
In addition, as a trading strategy, when you trade binary options, you can open multiple accounts and trade with brokers that offer high payout rates. Depending on the time frames and movements of markets, the payout rates offered by brokers do change. Therefore, in order to always place trades with high payout rates, it is a common approach to trade with multiple accounts.
Most Popular Binary Options Brokers for Beginners
*Investors can lose all their capital by trading binary options.