Binary Options Calculating Breakeven Win-Rate for a Given Payout

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Binary Options: Calculating Breakeven Win-Rate for a Given Payout

How often does my trades need to be successful in order to be consistently profitable in the long run when trading binary options? This is a very common question and the answer is shown in the formula above.

As you can see, the answer depends very much on the payout percentage for the given trading asset.

What is Win-Rate?

Often expressed as a percentage, the win-rate is the number of times on average that your trades are successful, out of a total of 100 trades. So, if you make a total of 1000 trades and are correct in 597 of those trades, then your win-rate is 59.7%.

In reality, for the win-rate number to be statistically significant, way more than 100 trades are needed, usually in the thousands. The larger the sample size, the more accurate the win-rate figure.

Breakeven Win-Rates for Common Payout Percentages

The table below lists breakeven win-rates for typical payout percentages offered by binary option brokers.

Payout (%) Win-Rate (%)
95 51.3
90 52.6
85 54.1
80 55.6
75 57.1
70 58.8
65 60.6
60 62.5

So, for example, if the payout is 70%, the trader will need to win on average 58.82 trades out of every 100 trades entered in order to achieve breakeven.

Calculating Expected Returns

Supposed a binary option trader have developed a trading system for trading USD/GBP that achieves a win-rate of 55%. While searching for a binary option broker, he found a Broker A that offers 80% payout and another Broker B who offers 85%.

Let’s see the expected return for each of these brokers.

We assume each trade having a deal size of $100, and the trader makes a total of 1000 trades using this system. Based on a win-rate of 55%, the trader will make 550 profitable trades and 450 losing trades.

With Broker A, the expected return is:

Total Gains from Profitable Trades = 550 x $100 x 80% = $44,000

Total Loss from Losing Trades = 450 x $100 = $45,000

Total Profit/Loss = $44,000 – $45,000 = -$1000

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    Best Binary Options Broker!
    Perfect Choice For Beginners and Middle-Level Traders!
    Free Demo Account! Free Education!

  • Binomo
    Binomo

    Honest broker!

With Broker B, the expected return is:

Total Gains from Profitable Trades = 550 x $100 x 85% = $46,750

Total Loss from Losing Trades = 450 x $100 = $45,000

Total Profit/Loss = $$46,750 – $45,000 = +$1,750

Broker A Broker B
Payout 80% 85%
Total No. Trades 1000 1000
Trader Win-Rate 55% 55%
No. of Profitable Trades 550 550
No. of Losing Trades 450 450
Deal Size $100 $100
Net Gains from Profitable Trades $44,000 $46,750
Net Loss from Losing Trades $45,000 $45,000
Net Profit/Loss -$1,000 +$1,750

As you can see, even though it seems that the difference in breakeven win-rates is only a few percentage points, they actually matter a great deal in the long run.

Continue Reading.

What are the Main Types of Binary Options?

Learn how the One-Touch, No-Touch and Range/Boundary binary options differ from the common high-low viety and how to trade them. [Read on. ]

What Assets can be Traded using Binary Options?

Many of the most popular financial instruments such as currency pairs, equities and commodities are available to trade using binary options. . [Read on. ]

Binary Options: Trading or Gambling?

Is binary option a legitimate financial instrument or just another form of gambling. [Read on. ]

Binary Options & Trading Robots: A Perfect Match?

Unlike humans, robots have no emotion and do not need to rest, so they can make a lot more trades than humanly possible, combined with perfect consistency. [Read on. ]

Is Binary Options Trading a Scam?

Learn how you can get scammed when trading binary options if you are not careful. [Read on. ]

How to Select a Binary Options Broker?

With so many scam brokers out there, before you learn how to trade, one must know how to separate the wheat from the chaff and find a trustworthy binary options brokerage. [Read on. ]

Binary Options: Calculating Breakeven Win-Rate for a Given Payout

How often does my trades need to be successful in order to be consistently profitable in the long run when trading binary options. [Read on. ]

Binary Option Trading Explained

Also known as digital options or fixed-return options, binary options belong to a special class of exotic options in which the payoff is either a fixed predetermined amount or nothing at all.

For the common high-low binary option, the trader buys a binary call option if he thinks the price of the underlying asset will go up above the current market price or if he thinks the underlying asset price will go down, then he will buy a binary put option. If his assessment is correct, he will receive a payout. Otherwise, he loses the initial investment.

As binary options have fixed returns, it doesn’t matter how high or how low the price of the underlying has moved past the strike price. The payout is also fixed and known prior to entering the trade. Also important to note is the fact that the payout for a successful binary trade is usually only about 70% to 80% of the investment put into the trade.

Binary options also typically have very short expiration times ranging from as fast as 60 seconds to just a few weeks.

Example of a Typical Binary Option Trade

A binary options brokerage is offering 85% payout for the binary call option on EUR/USD which is currently trading at $1.30.

After tracking the price movement of EUR/USD for the past hour, a binary option trader believes that the price will rise over the next 5 minutes and decides to invest $100 to purchase a binary call option on EUR/USD expiring in the next 5 minutes.

If EUR/USD goes up to say $1.31 five minutes later, the investment pays off and the traders earns a profit of 85% of his initial investment, which is $85.

However, if the price of EUR/USD drops down to say $1.29 instead, the trader will have lost his initial investment of $100.

Note that it does not matter whether the price of EUR/USD skyrocketed up to $1.40 or flash crashed below $1.00, both the profit and loss will be fixed at $85 and $100 respectively.

Continue Reading.

What are the Main Types of Binary Options?

Learn how the One-Touch, No-Touch and Range/Boundary binary options differ from the common high-low viety and how to trade them. [Read on. ]

What Assets can be Traded using Binary Options?

Many of the most popular financial instruments such as currency pairs, equities and commodities are available to trade using binary options. . [Read on. ]

Binary Options: Trading or Gambling?

Is binary option a legitimate financial instrument or just another form of gambling. [Read on. ]

Binary Options & Trading Robots: A Perfect Match?

Unlike humans, robots have no emotion and do not need to rest, so they can make a lot more trades than humanly possible, combined with perfect consistency. [Read on. ]

Is Binary Options Trading a Scam?

Learn how you can get scammed when trading binary options if you are not careful. [Read on. ]

How to Select a Binary Options Broker?

With so many scam brokers out there, before you learn how to trade, one must know how to separate the wheat from the chaff and find a trustworthy binary options brokerage. [Read on. ]

Binary Options: Calculating Breakeven Win-Rate for a Given Payout

How often does my trades need to be successful in order to be consistently profitable in the long run when trading binary options. [Read on. ]

One-Touch Binary Options Explained

With the one-touch binary option trade, the binary options trader selects a strike price above or below the current market price as well as an expiration time. The broker will offer him a payout percentage corresponding to his selection.

For the investment to payoff, the price of the underlying asset only needs to hit the strike price once before the option expires and does not need to exceed this level at the time of expiry.

Payout will vary greatly depending how far away is the strike price and the time till expiration. The further away the strike price, the higher the payout. The longer the expiration time, the lower the payout as one has more time to hit the target.

Unlike the common high-low variant where the payout rarely exceed 90%, the payouts for one touch binary options can easily exceed 100% and payouts between 200% to 500% are not uncommon.

It is entirely up to the trader how much he wishes to invest with each purchase of the binary option but the minimum and maximum he can put in with each option varies across brokerages.

One Touch Binary Option Example

EUR/USD is currently trading at $1.29. A binary options brokerage is offering 200% payout for the one-touch binary option with a strike price of $1.30 that expires in 5 minutes.

After tracking the price movement of EUR/USD for the past hour, the binary option trader believes that the price will hit $1.30 within the next 5 minutes and decides to invest $100 to purchase this one-touch binary option.

If EUR/USD goes up to $1.30 anytime within the next five minutes, the investment pays off and the trader earns a profit of 200% of his initial investment, which is $200.

However, if the price of EUR/USD never rise to the $1.30 price point during the whole 5 minutes, the trader will have lost his initial investment of $100.

Note that it does not matter whether the price of EUR/USD skyrocketed up to $1.40 or flash crashed below $1.00, both the profit and loss will be fixed at $200 and $100 respectively.

No-Touch Binary Option

Conversely, there is the no-touch variant as well. See No-Touch Binary Options.

See Also

Continue Reading.

What are the Main Types of Binary Options?

Learn how the One-Touch, No-Touch and Range/Boundary binary options differ from the common high-low viety and how to trade them. [Read on. ]

What Assets can be Traded using Binary Options?

Many of the most popular financial instruments such as currency pairs, equities and commodities are available to trade using binary options. . [Read on. ]

Binary Options: Trading or Gambling?

Is binary option a legitimate financial instrument or just another form of gambling. [Read on. ]

Binary Options & Trading Robots: A Perfect Match?

Unlike humans, robots have no emotion and do not need to rest, so they can make a lot more trades than humanly possible, combined with perfect consistency. [Read on. ]

Is Binary Options Trading a Scam?

Learn how you can get scammed when trading binary options if you are not careful. [Read on. ]

How to Select a Binary Options Broker?

With so many scam brokers out there, before you learn how to trade, one must know how to separate the wheat from the chaff and find a trustworthy binary options brokerage. [Read on. ]

Binary Options: Calculating Breakeven Win-Rate for a Given Payout

How often does my trades need to be successful in order to be consistently profitable in the long run when trading binary options. [Read on. ]

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    Best Binary Options Broker!
    Perfect Choice For Beginners and Middle-Level Traders!
    Free Demo Account! Free Education!

  • Binomo
    Binomo

    Honest broker!

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