A Guide to Binary Options Payout Rates
One of the most important concepts to understand about binary options trading is the payout rate. This is important for one, very crucial reason – it affects how much you get paid, and that is what binary options trading is all about.
One of the main pieces of information an option trader examines when choosing a broker or electing to trade binary options is the binary option payout rate. You can not only see how much you will profit, but can also use the payout rate to contrast and compare brokers for you.
This article will explain what payout rates are, how much they offer, and how the type of option affects the rate itself.
What are Payout Rates and Why Do They Matter?
Payout rates, as mentioned above, are your rates of return for a trade that is in the money. Just as a slot machine pays out a given amount of money on a jackpot, a payout rate offers a fixed amount of money as a return when you trade binary options successfully.
Payout rates vary depending on which option brokerage you use and what their terms may be. Not all option brokerages offer the same terms; some may offer higher returns than others. Plus, the actual rate will probably be affected by the type of option you use in your binary options trading – more on that later.
The lowest payout rate amount we have seen online is 65% of your investment. This means that a $100 trade will give you a return of $65. The average seems to be 70-75% – offered by option brokerages like TraderXP.com.
Some deliver higher rates of return for standard binary options, as high as 85%. Of course, these are for standard options. The payout rate increases depending on the type of option you use.
How the Option Type Impacts the Payout Rate
When you trade binary options, you have at your disposal various types of options. Many option traders prefer the tried-and-true, standard High/Low option type, in which you predict if a stock will rise or fall before expiry. These are the simplest and often have the lowest payout rates.
The next category is called a barrier, or touch, option. This gives you a barrier or boundary to hit, which may be higher or lower than the current price. An option trader places a trade on whether or not the price will hit the boundary before expiry. Some boundary options pay out only if it finishes above the mark – be careful about the distinction.
Some websites, such as AnyOption.com, offer returns up to 380% for these.
Finally, you can have what are called Range binary options. These typically pay more than other types, as much as 400%, because they are more difficult. To win with these, your asset must be between two prices at expiry to get in the money.
When deciding to place a binary option trade, be very careful that you pay attention to the payout rate. It may not be worth your time, or it may have a really high payoff that is pretty challenging to hit.