The payout percentage on an option is an important nuance that everyone forgets about

The payout percentage on an option. What you need to know.

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Earnings on binary options form the percentage of the premium from the amount invested in the selected type of contract. The broker pays it out together with the return of the rate, if at the time of the end of the period – expiration – the condition chosen by the trader is fulfilled. As a rule, it refers to the position of the price relative to the entry point (purchase of the contract), which determines the name of the type of contract: “High / Low”, outside or inside the range, etc.

However, the payout percentage for an option may vary. Depending on the time of day, trading instrument, etc. Today we will figure out what it depends on and what should be the minimum allowable percentage of the option premium for trading to make sense at all. Brokers don’t want you to know …

 

The expiration time and type are the main parameters that form the percentage of premium payments, along with the current situation: the time of day and the type of the selected trading instrument, in most cases, the currency pair .

The correct combination of the above set allows the trader to ensure the highest probability of making a profit, but it is at this moment that his efforts will be crossed out by the broker. The reason is that the owners of this business also know how to calculate market situations, therefore they set a “floating” percentage of the bonus payment, reducing it depending on many factors.

Why is the percentage of binary options premium payments declared by the broker “losing weight”?

The payout percentage on an option is an important nuance that everyone forgets about

Binary options of the “Range” type are in demand among traders due to the fact that they do not require an accurate determination of the direction of price movement. The beneficiary of the contract only has to predict whether the price will remain within the range or outside the selected expiration period.

The task is not difficult if the trader:

  • Knows about the release of significant news , which will cause an unambiguously strong movement (publication of GDP, discount rate , unemployment, etc.) in order to predict a clear exit of the rate from the range;
  • It trades at night, which guarantees low activity, leaving quotes within the price channel.

In reality, the broker will “lower” the percentage of premium payments after 21-00 or decrease it when choosing a large time interval for expiration, which increases the likelihood of prices going out of the range.

Despite advertising 90% of the premium, the Agreement with the client almost always provides for:

  • Floating interest;
  • Closing the opportunity to purchase contracts at certain points in time at the choice of the broker.

If a company guarantees a fixed percentage, then it chooses the size of the range on its own and limits the duration of the expiration time. Pay attention to the figure below, where you can see how the premium decreases when moving from a five-minute to a four-hour expiration range. The price boundaries in which it is predicted also change along with the choice of the expiration time of the contract (at the discretion of the broker).

The payout percentage on an option is an important nuance that everyone forgets about
This value also affects the premium for the High / Low option.

It would seem that it is difficult for a trader to accurately determine in this type of options exactly where the price will go relative to the moment of entry. But any textbook of technical analysis will tell you an axiom – by analyzing the trend at daily open / close prices – you can see the exact direction of movement in 75% of cases.

Therefore, the broker reduces the percentage of premium payments on the “Higher / Lower” option, depending on the choice of expiration, according to the principle – the higher the time, the lower the percentage.

In the figure below, in the left column of the option specification, you can see the spread of the premium from 75 to 85%, where the extremely high reward refers to the “minute” expiration, with the hourly duration of the contracts, payments will fall by 10%.

The highest payouts are on “tick” or “turbo” contracts, where the expiration counts for seconds, and it is almost impossible to predict the direction of price movement.

To make it more difficult to determine the direction of movement, the company uses its own terminals, with a minimum set of technical analysis tools – trader’s assistants.

The choice of the type of instrument also affects the percentage of payments – many currency pairs are in long-term trends or correlations, therefore they often move in predicted trends. Having expanded the specification of the broker’s premium payments – anyone will immediately see what it is about – the size of the premiums will be heterogeneous, the more predictable the pair, the lower the premium.

Brokering is another reason for low premiums, the broker may be a subcontracting company operating under a well-known brand that provides them with a high percentage of premium payments for each attracted client or simply sells options contracts. Such a business is based on “turning on one’s own interest” – a binary option is resold to a client, the premium of which is understated, being the income of a sub-broker.

The spread – the difference between the entry to buy the option Above and the purchase of the contract “Below” – can reduce the premium by up to 10%, depending on its type.

When buying an option, an order is opened that is identical to the currency pair, so the purchase of the Above option will take place at the Buy price, which is different from the purchase of the Below contract at the Sell rate:

The payout percentage on an option is an important nuance that everyone forgets about
Highest spread on cryptocurrency , and lowest on currency pairs. Many newbies do not pay attention to this, but in most cases it is this shortage of points at the entrance that will prevent the purchased binary option from closing in plus.

How to increase the percentage of the premium on binary options?

The payout percentage on an option is an important nuance that everyone forgets about

Increasing the payout percentage should not be the only goal of a trader who can fall for scammers who deliberately attract clients with sky-high promises.

  1. Choose the right broker , take into account the experience and duration of work in the market, licenses. Remember to do some market research to get an idea of ​​premium rates for all types of contracts. This will help in negotiations with the broker who will be chosen by the trader to trade. Knowledge and examples of interest rates from other companies can help to achieve higher payments or special conditions .

If this has not happened, then the trader is dealing with a sub-broker, a “reseller” of options, so it is worth looking for companies that independently write contracts with a more favorable percentage of the premium.

  1. Monitor multiple sessions for intraday payout changes or stop trades before trading. It is possible that the hours chosen for the strategy coincide with the period of reduced payments. To be sure of these guesses, watch with an open working terminal, typing (but not exercising) the parameters of the transaction (expiration, type of option, etc.).
  2. Pay attention to the presence and size of the spread, in most cases it is zero on binary options. If this is not the case, then please note that the difference in prices Above / Below should not exceed tenths of a percent.
  3. Take advantage of the offer to return part of the payments on lost options , the share of which can reach up to 15% of the “burned out” investment.
  4. Open several accounts with different companies and combine positions by buying a certain type of option on favorable terms from one of the brokers .
  5.  Study the promotions and bonuses carefully and keep track of them in the future. Given the high competition, you can choose loyalty programs for yourself and get options for “no-loss deals” or increased payments for a certain period. Do not pass by cashbacks that reimburse amounts from lost funds or money transferred to a broker.

Learn to work with exotic options or make express trades, which involve forecasting several outcomes (a series of expirations) in one contract. The payment for such types is up to 1000% or more of the invested amount, which is a good incentive to study methods of working with exotic conditions.

Do not use random indices in strategies for working with exotic options – there is no guarantee that the instruments invented by the broker, according to him being randomly generated, will not be manageable.

What should be the minimum payout percentage for a binary option?

The payout percentage on an option is an important nuance that everyone forgets about

According to the research, the bulk of good  strategies for binary options traders make up, on average, 60% of successful, positive trades. It is easy to calculate that an 80% premium return will provide 8% of net income.

Therefore, to work with a broker offering a trader payouts in the area of ​​75% and below, there must be a good reason in the form of performance above 70%, confirmed by real results. Otherwise, even a profitable strategy will feed the broker, spinning money on the account with zero efficiency.

Conclusion

The payout percentage on an option is an important nuance that everyone forgets about

The payout percentage on a binary option is a small but critical detail that many beginners overlook. If you trade options with a low premium percentage, even the best strategy can work in the red for this reason.

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