Trading binary options might seem pretty easy at first. The thing to remember, however, is to treat them just as you would any other trade. Trading in general is not easy, so trading binary options should not be easy either. While there is less work that you might need to put into a binary option than if you were, say, selling a company’s stock short, there is still a lot of work that needs to go into binary options if you want to be successful. Without the necessary work, you have a 50/50 chance of being right in your prediction, but the brokers’ payout is less than 1:1 so you will always go broke over the long term if you are simply guessing.
You need to look at how much the payouts are on your correct trades in order to figure out the breakeven rate. If the breakeven rate is too high, you are better off either finding a broker with a better payout, or putting your money in a safer investment. For example, with a consistent payout of 70 percent, you need to be correct 59 percent of the time to turn a profit over a large sample size.
Some brokers such as AnyOption and 24Option offer cash back for losing trades. This is a great way to protect your bankroll, but just how much of an impact does it make? Let’s look again at the average 70 percent payout to see what are new breakeven rate is.
(55 x 170) + (45 x 15) = $10,025
So, in the above math, we have a win rate of 55 percent and a lose rate of 45 percent. Over 100 trades of $100 each, we get back $170 when we have a winning trade, and we get back $15 when we have a losing trade. In order to be profitable above our $10,000 originally invested, if we are right, in this scenario, 55 percent of the time, we will make $25 every 100 trades.
This might not seem like it is worthwhile. $25 is not a lot after risking $10,000. Of course, binary options are operated this way in order for the broker to make a profit. There is no steadfast rule that you will only be right 55 percent of the time. Some talented traders are right much more often. This is only a minimum rate in order to breakeven. By identifying how often your trades are correct though, you can use this math in order to figure out whether or not you have been a successful binary options trader. This is a great way at evaluating whether or not this is a worthwhile long term investment for you.