Do you want to trade binary options but the payouts confuse you? We explain everything you need to know. Learn more about the IQ Option payout now!
General risk warning
In the world of money, payouts are a relatively common phenomenon. You can get payouts when investing in option contracts, when betting on sport events, or when playing in the casino. All of these payouts, however, differ from payouts on binary options in one very important characteristic: They calculate their value differently.
To understand this essential point to binary options trading, let us look at an example and compare it to binary options. When you bet on a sporting event, your bookie might offer you a payout of 5.0 if team A wins and a payout of 1.3 if team B wins.
In this case, Team B would be the favorite to win the game, which is why you only get your invested money plus 20 percent back. Team A would be the underdog, which is why you get 5 times your investment back.
In both cases, the indicated payout includes every cent you get when you win your bet, including your original investment. In that sense, a payout of 5.0 would generate a profit of 4 times your investment, because you have to subtract 1.0 for the original investment. A payout of 1.2 times the original investment consists of a profit of 0.2 times the original investment plus the amount of your original investment back.
With binary options, however, things are different. Here, a payout only indicates how much profit you can make if you win your option. The fact that you get your investment back is considered to be a given.
When you compare the profitability of binary options and other forms payouts, you have to consider the different nature of binary option payouts, or you can never arrive at an accurate result. A payout of 80 percent with binary options is equal to a payout of 1.8 with other payout types.
This difference is important to know for two reasons:
1. If you do not know this relationship, you might underestimate the profitability of binary options compared with other assets. In the worst case, you might think that a payout of 90 percent means that you get less money back than you invested and stay away from binary options, when in reality a payout of 90 percent is almost a guarantee to make money.
2. When you compare payouts of different binary options types, you have to understand that you can’t compare them the same way you would compare other payout types. When your bookie gives you odds of 2.0 and 4.0, for example, you would make 3 times the profit if you win the latter bet. With binary options, however, a payout of 180 percent compared to a payout of 90 percent would mean that you would make 2 times the profit. To create a good trading strategy, this is a fact you have to know.
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