In this article I will show you the win rate percentage required to break-even in binary options trading. You will learn how to calculate a winning percentage and you will learn about notions like: profit margin ratio formula, break even margin and breakeven ratio.
Calculating the winning percentage and breakeven rate isn’t as hard as it sounds but you have to understand a few aspects first.
How To Calculate The Winning Percentage
Due to the nature of binary options trading (high low binary options), you will usually have a payout percentage of under 100% for all your trades.
HighLow binary options trading is the type where you have to predict, whether the price of an asset will go up or down. This is the most popular type of binary options trading.
How can I figure out win percentage in binary options trading?
Lets take the most popular currency pair EUR/USD. You take this asset and invest $10. The payout is 83% and you think that the price will go up.
If the price goes up then you will get $10 back + 83% = $18.3 TOTAL.
If the prices goes down then you lose $10.
As you see there is a difference of 17%. If you win you get $8.3, otherwise you lose $10. This means that, if you win once and lose once you will end up losing money in the long term. You will need a bigger win percentage than 50.1% to make profitable trades.
To calculate the break-even ratio and winning ratio you will have to calculate the following:
If you win you get 83%
Otherwise you lose 100%
Difference = 17% (this means with only 50% success rate)
How to calculate the breakeven percentage: 100% / 183% (100 + 83) = 55%.
Winning trades: 55 * 10 (money you invest per trade) * 83% (payout) = $456.5
Losing trades: 45 * 10 = $450
This means that you will have to win 56 trades from 100 to make a profit ($6.5). A trader with 50% win rate will actually lose money on the long run.
In order to make money with trades that have a 83% payout you will need to win 55% of your trades. If you manage to win lets say 65% of the time then you will have the following profit margin: 10%. After 65 trades of $10 you will make.
65 * $10 * 83% = 539.5
How Comes There Are Payouts of 100% And More?
Sometimes the brokers offer trades with 100%-200% payout. The reason is that these outcomes are very unlikely to happen. You will have a very low chance with these types of trades.
Now that you have the winning formula, you can easily calculate it for yourself what winning percentage you need in order to make money with binary option trading. By doing so, not only will you be able to see the numbers clearly, but you will also be able to create a winning strategy.
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