Important Factors to Know In Binary Options

As an Option trader, it will be interested to know some important factors with regard to your profit and how you are paid. These factors include; 
How to determine your payouts, factors to be considered in your payout calculation and when an option is regarded as closed.
Let's take a look at them one after the other; 

1.  Payouts Determinant in Binary Options

By now, you must have learn some of the mechanics in simple option trade, it's also important to know how payouts in binary options are calculated.
The calculation depends on;

i.             The size of your Capital at Risk;

In this aspect, the Amount you risk varies to the amount of payout you will receive. The higher the Premium, the higher the profit and that’s it. There is no beating about the bush here. If you invest a little, your profit will be small compared to someone who invested huge amount, though the percentage are the same.
Let’s take an example of table containing three investors trading with the same broker, same currency pair and direction. And the broker is offering 70% of premium as profit.

The table above is self explanatory, right?

If you invest a huge amount, it means you are taking a bigger risk to catch a bigger fish. But you may loss greatly if the game turns the other way round, Boy!
****Apply Risk management before investing. 

ii.             The position of Asset when the trade is closed;

The position of your chosen asset before the close (some brokers offer this type of trade) or at close time (expiration) is very vital. You should be able to know when you are in-the-money or out-of-the-money. 

The bottom line is this; if you win, you take all and if you loss, you forfeit the premium.
Note that some brokers will allow you close some of your trade before the expiration. You will also see the value of the asset as it increases (in-the-money) or decreases (out-of-the-money).
In such cases, you have three choices to make;

i.             Take some of the profit (if the market is in your direction)

ii.           Cut your losses (if the price goes against you)

iii.         Wait to take all profit or lose the stake amount at expiration.

iii.             The Brokers Payout:

Payouts are usually paid as a percentage of the premium amount and it varies from broker to broker. So, your payout is depends on what the broker offers. It ranges from 65% to 90% from my experience. There are also some types of order you will chose in binary options and you get a higher payout. This can be up to 250% to 500% especially in the “One Touch” Option. 

We will come to that soon.

Let’s take an example from the table on “How to Make Money in Binary Option” to explain what we’ve just read above;
Assuming you chose GBP/USD at 1.5400 and bet $100 believing the price will rise above it 2hrs. Let’s say the broker is offering a 75% payout. If your prediction comes true and it happens that the price really rise above 1.5400, it means you are in-the-money. And without doubt you will then get a payout of $175.

Mathematically,
Premium + Brokers % = What You Get.
$100 (Premium) + $75 (79% Brokers Offer) = $179

Does this make sense ehh?

You must know that this is only one approach used by brokers to calculate the payouts, but that’s not all. There are also other broker factors that can affect payouts calculation.