How Do Payouts Work in Binary Options?
This is a significant advantage—before initiating a trade, most trading platforms will allow you to see the amount you stand to receive if you correctly predict the price movement.
In binary options trading, the payout or the amount that you can expect to win after successfully executing a trade is expressed in terms of a percentage.
Across the industry, you will find that many brokers offer a payout that ranges between 65% and 90%. Anything lower is probably a red flag and you should look for another broker.
You may also come across brokers, who offer payouts as high as 300%, but these are rare and they offer such high payouts on high-risk trades such as boundary trading or touch/no touch trading.
How do payouts affect your final pay?
As mentioned, payouts are expressed in terms of a percentage. This means you will receive a percentage of your initial investment when you correctly predict the price movement of an asset.
For example, say your initial investment is $500 and your broker is offering a payout of 70%. If your trade ends in the money i.e. you make a correct prediction about the price direction of the asset, the final amount you will receive in your account will be $500+ (500x70%) = $850 i.e. you would have won a total of $850.
What happens if your trade ends out of the money, i.e. you do not make the correct price movement prediction?
Some binary options brokers now issue a partial refund in case a trade ends out of the money. This is one the things you should look out for when selecting a broker. A partial refund certainly protects you from the impacts of a complete loss.
Note that not all brokers will offer a refund. In this case, you would lose your initial investment if your trade ended out of the money.
Will the payout always be constant?
Different options contracts have different payouts. For example, your broker may offer you a payout of 80% when trading on gold prices and then offer 85% payout on USD/EUR currency pair trade.
What’s really important is that you will always see what your payout will be before you execute the trade.
Generally, high-risk assets and market conditions influence the payout rate. This is why when trading, for example touch/no touch, the payouts are much higher because of the amount of risk involved in predicting price movements compared to the risks involved in a basic call/put trade.
What strategy should you use??
As you get started, it could seem like the reasonable thing to do is to go for binary options contracts that have a higher payout and to put in a large initial investment. However, this approach can be quite risky especially for the beginner trader who is just getting familiar with the world of binary options.
You are better off starting with trades that have lower payouts and beginning with a lower initial investment then slowly build your investment (and your experience) with the least amount of risk.
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