Payouts in Binary Options Explained

Introduction to Payouts in Binary Options

Payouts are the desire of every binary options traders. Payouts are the reward for winning trades in the binary options market. For some, payouts are the profits that are made on binary options trades. In other quarters, payouts are seen as the sum of the profits made on a trade plus the initial invested amount, which is returned to the trader’s account.

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What are Payouts?

There are different types of binary options platforms in the market arena. With these platforms come different binary options brokers. It would be very boring and not very marketable for all brokers to offer the same payout or profit plan to their traders. This is why the payout plans and percentages/amounts differ from broker to broker.

Format 1:

Some brokers will express the payout as the sum of the invested amount and a percentage of the profits made. Otherwise, they simply express the payout as a percentage of the invested amount (e.g. 75%), since the trader will get back the invested amount in the event of a winning trade anyway. In this category are most of the brokers who use the white-label platforms. The payouts are usually fixed and cannot be influenced as we shall see in the second format.

Format 2:

The broker offers the payout as a fixed amount of money and not as a percentage. The amount that a trader can earn changes according to market conditions as well as other trade conditions such as the probability of success for a trade. The less likely a trade is to succeed or the less probable a trade outcome can be predicted, the more the trader can earn from a fixed investment. Brokers who provide proprietary platforms are more likely to use this model since the payout structure can be used as a marketing tool to attract clients to their specific brand.

How does this format work? A trader chooses an amount of money that he wants to be left with after the trade. For instance, he may decide that he wants to come out of a trade with $200. The trick here is, how much is the trader going to be asked to invest in the trade? He may be asked to invest $98 or $120 or even $150.

How to Work Payouts in Binary Options In Your Favour

Format 1:

Payouts under the first format (where payouts are expressed as a percentage of the invested amount) cannot be influenced by trade conditions or market situations. They are fixed. If a trade pays out 80%, then it is most likely that the trade will payout 80%. However, the brokers can adjust the payouts for every different trade, but for one trade, the payout cannot be adjusted and does not fluctuate.

Format 2:

We can see that the second payout format is different from the first in one key respect: payouts are not fixed. When the trader is handed an opportunity to tweak the payout numbers in his favour, such an opportunity should not be wasted.

For this format, the amounts that the trader is asked to invest in the trade by the broker in order to get the payout will depend on a lot of factors. For instance, a trade with an obvious outcome will attract a heavy investment outlay with a little profit attached. Those are not my kind of trades. Using some of the numbers we gave earlier, I would struggle to find an attraction to stake $157 for a payout of $200 (invested amount plus profit). The trader should aim to risk less than he stands to win, or at least, risk an equal amount of just a little bit more (should not exceed $10). Frankly, the best situations are to risk less than the trader stands to make.

The only way to do this is to do the following:

a)    Only pick trades whose outcomes are not obvious.

b)    The further away the expiry is set, the less the investor will have to put in the trade and by extension, the more money can be made. Elongating the expiry confers an air of uncertainty on the outcome of the trade, and as far as payouts are concerned, uncertainty is good business.

c)     Try to analyze trades using charts. Chart patterns alone have helped me pick profitable trades when they are not obvious.

Conclusion

At the end of the day, whichever broker you use or payout format you are served with, the trader’s responsibility is to win the trade because without the trade ending as a winner, no one can even talk about a payout. Read this article for information about the win-rate % needed to break-even on different payouts and trade types.

Adam

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Adam is an experienced financial trader who writes about Forex trading, binary options, technical analysis and more.

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