Since the odds on every trade you make are different, you cant calculate this in the traditional fashion, but what you can look at are the payout percentages and out-of-money rewards and how they impact your trading experience. The reason that brokers dont pay out 100 on winning trades is that paying out a smaller percentage does give them an edge.Lets look at an example so you can understand how this works. Lets say youre going to invest 100 on a binary options trade. If you win, the trade will pay out 75. If you lose, it will pay you back 15. If you win this trade, you will win 75.00. If you lose, you will receive 15.00 back as a refund. While some binary options trades will pay out a higher win percentage than this, 75 is fairly typical. Notice how there is a gap between the percentages 75 15 doesnt add up to 100. It adds up to 90. That additional 10 always goes to the house (or stays with the house)you dont get it back if you lose a trade, and you dont win it if you win a trade.If you were to make 100 on each of the trades you won (this isnt going to happen with any binary options broker), and received no refund on lost trades (for the sake of simplicity), it should be intuitive to you to realize youd need to win half of your trades in order to break even over time. Youd need to win more than half of your trades to be profitable. Now consider that youre not going to make 100 on any of your trades, and again, your refund when you lose is pretty marginal. Lets say you started out with 1000 and placed 10 trades of 100 each, and that you won 60 of them.In this situation, had you won five trades and lost five trades, you wouldnt have broken even youd have lost 50.00. And now think if you didnt even have 1000 in your trading account. A lot of people start out with just a couple hundred dollars. If you werent smart enough to only trade a small percentage (and 10 as in the above example is still rather high), you could blow your account in just a couple of trades. Imagine if you had 200 deposited and you invested 100 on each trade. If you lost your first three trades, youd lose all the money in your account. Losing three trades in a row, even with a great system, isnt an amazingly long losing streak by any stretch of the imagination.So that means that if you do have an account with a mere 200 deposited, in order to trade intelligently, youre going to want to trade maybe 20 each time around. Now that you have that in mind, can you see why its ridiculous to believe that you can turn 200 into 200,000 overnightDoes that mean theres no point to binary options trading Not necessarily. It just means that you should appreciate the house edge and take that into account when you manage your money. If youre gambling for entertainment, theres no reason you cant have as much fun with binary options as you can with a casino game. Just as youd learn about the house edge before you spent your money playing poker or roulette or a slot machine, its important to know how to manage your bankroll when you trade binary options.And if youre a serious trader, its important that you realize just how high a win percentage you need in order to do well with binary options. If youre starting with a small account, you should have a realistic view of how long its going to take you to establish yourself and become a successful, profitable trader. Theres nothing wrong with this. All professions take a long time to get started in if youre building from the ground up, and patience is an important quality in any trader.Once in a while, a new financial product is created that gets traders excited about getting involved in the markets. Its hard to create a new product these days that is better than the tried and true products that professionals have been using for years. One of the newer products to hit the markets over the last few years is binary options. These are products that are very much like throwing your bet down in a casino and hoping that bet hits big money.By definition when you trade a binary option you are placing a bet that either produces a fixed profit at expiration or nothing at all. You are placing a short term bet on the price movement of an instrument like a stock over a short amount of time. When a binary option is purchased, the buyer owns a contract that gives them the right to buy an asset at a fixed price within a fixed amount of time. The buyer has to hold the contract to expiration, which is very different from a traditional option. For example, lets say you think Apple is going higher over the next 10 minutes. You can go in and buy a binary call option which gives you control of Apple stock at a fixed price for the next 10 minutes. If Apple does indeed go higher then you get to book a profit. Often times this profit is around a 70-80 return. However, if the trade works against you the losses tend to be in the 90 range. Not the odds that we are looking for when looking to trade successfully. These products are attractive to newer traders because they are very easy to use and understand and also easy to get started with. It doesnt take much to open a trading account and you can start with as little as a 100. However, dont confuse these products with traditional options as they are very different.When we talk about trading traditional options, we are talking about placing trades that put a statistical edge in our favor. If a trade works against us, we are able to make adjustments to limit our losses. We can still place bets on the movement in the stock but traditional options give us more flexibility. Traditional options are also highly regulated, which means the regulating bodies make sure your best interests are recognized by your broker. In the world of binary options, the broker can get away with whatever they want with no consequences. If you want the security of a regulated market then make sure you stick with traditional options.Its no surprise that binary options have grown in popularity over the last few years given how similar they are to making a trip to the Vegas Casinos. When trading binary options, you must understand that the odds are not in your favor and that it is very difficult to be successful. Why do Casinos make so much money They only offer games that give them an edge.
