The main reason investors want to trade binary options is because they stand a good chance of earning money. The good thing is that most brokers show the potential profit percentage that can be generated if the trader has a positive outcome. In other words, they show you the percentage of earnings that will be received if the original price direction was accurate at the time of expiry. The percentages are added to the initial amounts that are invested to create the total payout amount generated from the trading of the binary option.
For the sake of an example, a trader places a $1,000 option contract and the winning stake percentage with their position is 80%. What this means is if the trader is correct he or she will get back the initial $1,000 and an additional 80% of that amount; thus making the total earnings $1,800. Hence, you know exactly what you can make before placing funds on any option trades; making this a very transparent way to invest.
Variations between rates and contracts
The thing to understand right away is that there are different payouts associated with different binary options contracts. It’s most common to find rates between 60% and 90% where payouts are concerned; if you find brokers offering less than this then find another platform to use. Sometimes, brokers allow traders to earn partial investment refunds if trades end out of money.
Just keep in mind that refund percentages are usually low, and are to be subtracted from the total amount invested. For those traders who don’t accept the refunds, it affects rates for payouts. Here is an example:
The Full Option: 80% payouts with no chance for refunds ends in an 80% profit.
Refund: 70% payouts with a 10% chance of refunds ends in an 80% profit.
Other times, you’ll notice that High Yield binary options offer much larger payouts. For instance these have been known to reach 500%. However, keep in mind that such trades are associated with more trading restrictions in place that protect the brokerage platform.
In conclusion, it’s essential to understand binary options payouts before you begin to trade because this will help develop your plan, which will help build your trading account in time. Remember that certain factors are known to influence potential payouts, as well as provide a bit of protection against major losses. So, just make sure you choose a broker that offers between 60% and 90% payouts and have fun trading and earning off binary options!