Binary options payouts or returns are clearly vital to the success or otherwise of any aspiring binary options trader. So the comparison of payouts before joining a particular broker is also important. That comparison though, may not be as straight forward as it seems.
- What are binary options payouts?
- Why getting the best binary payout matters
- Strike rate examples
- How to find the best binary options payout – for you.
Broker lists will generally contain a payout percentage. Ours here at binaryoptions.co.uk certainly do. But those figures can act only as a broad guide. Beneath the headline figure, the numbers may change considerably. Percentages will fluctuate on different assets and different expiry periods, so shrewd traders need to dig a little deeper to find the best value for them personally.
What are binary options payouts?
A binary option payout is the the expected returns that a trader will receive if their trade finishes “in the money”. (They predict the correct price movement of the underlying asset value).
If a binary option of £10 finished in the money, with a payout of 85%, the trader would receive the initial trade amount (£10), plus 85% (£8.50). £18.50.
For the purposes of this article, we looked specifically at one market. We chose the forex asset class and the EUR/USD forex pair. From our list of brokers, payout percentages for this binary option varied from 70% to 82%. (Note these are lower than the majority of “headline” payouts that brokers suggest they offer – highlighting the importance of comparison for the specific asset a trader intends to deal in).
Binary options payout impact
Using the figures above, some traders may not be overly concerned with 12%. But the difference between collecting 70% or 82% on any investment is clearly huge when taken over the longer term. If we assume a single £100 trade, the difference between taking the lower percentage and the higher, is obviously £12. No serious trader however, is going to trade just once. Over one hundred trades, the difference in payouts is £1200. If trading £100 a time, then £1200 is a considerable sum.
The difference in payout though, should hopefully be clear to any trader, even those finding their feet. The real difference comes in what the binary options payout figure translates into, when we calculate how many trades need to be successful before the trader moves into profit.
Let us assume a very generous broker is paying 100%. A trader would then need to be correct on 50 trades out of 100 to break even;
50 lose = -50
50 win = +50
Net result = 0
Unfortunately brokers rarely have a payout of that level, particularly on the forex markets. So let us look again, but this time at the success rate needed if the binary options paid out 70%;
41 lose = -41
59 win = 41.3 (59 x .7)
Net result = +0.3
So 59% of trades need to be successful to turn a profit with a payout of 70%. A payout at 82% however, requires a lower success rate;
44 lose = -44
56 win = +45.92 (56 x .82)
Net result = +1.92
At a payout of 82%, a success rate of 56% is required.
These very simple examples highlight the impact of binary options payout percentages. These small margins are exactly what separates profitable traders from the rest. No trader can afford to turn down a 12% payout difference and the extra pressure that a lower percentage will put on every trade.
How to find the best binary options payout
- Identify your frequently traded assets
- Identify you favoured expiry time and option type
- Compare payouts of those specific combinations of asset, expiry and trade type
- Repeat the process when necessary
As previously noted, a headline percentage rate my not apply in every asset, for every expiry period. So the first step a trader must complete is to map out a plan. What assets are likely to traded, how often and over what expiry periods? Once this is known, binary options brokers can be compared in this specific area. This comparison will highlight the best broker for that particular trader at that time. Demo accounts might be a useful way to check the payouts at new or alternative brokers.
Brokers specialise in certain asset classes, commodities or even currencies. This means payouts vary between each, and the firm with the highest payout for the GBP/JPY forex markets, might be the lowest for the crude oil market.
This broker comparison process needs repeating frequently in order to ensure rates have not moved and trades are being made using the best binary options payout percentages. Brokers will move their payouts as volume and and risk dictates.
Find the highest binary payouts – regularly
In order to find the best binary options payouts, traders must first identify the assets they want to trade. They can then accurately compare brokers based on the options they are likely to trade, both now and in the future. This process should be repeated reasonably regularly, and if a new broker gives a greater payoff, traders should move accounts. It is the sort of attention to detail that the most successful traders will not overlook. Note also, that exchange traded and over the counter brokers are not always easy to compare – both type of brokers need to be understood in order to compare payouts.
Which broker has the highest binary options payouts?
Hopefully, the explanation above has illustrated that the title of the “broker with the highest payout” will not be the same for everyone. It will depend on the trading style, assets traded and expiries. For those looking for a quick summary however, the brokers below currently boast the highest “headline” payout percentage.