Binary Options: Calculating Breakeven Win-Rate for a Given Payout
How often does my trades need to be successful in order to be consistently profitable in the long run when trading binary options? This is a very common question and the answer is shown in the formula above.
As you can see, the answer depends very much on the payout percentage for the given trading asset.
What is Win-Rate?
Often expressed as a percentage, the win-rate is the number of times on average that your trades are successful, out of a total of 100 trades. So, if you make a total of 1000 trades and are correct in 597 of those trades, then your win-rate is 59.7%.
In reality, for the win-rate number to be statistically significant, way more than 100 trades are needed, usually in the thousands. The larger the sample size, the more accurate the win-rate figure.
Breakeven Win-Rates for Common Payout Percentages
The table below lists breakeven win-rates for typical payout percentages offered by binary option brokers.
| Payout (%) | Win-Rate (%) |
|---|---|
| 95 | 51.3 |
| 90 | 52.6 |
| 85 | 54.1 |
| 80 | 55.6 |
| 75 | 57.1 |
| 70 | 58.8 |
| 65 | 60.6 |
| 60 | 62.5 |
So, for example, if the payout is 70%, the trader will need to win on average 58.82 trades out of every 100 trades entered in order to achieve breakeven.
Calculating Expected Returns
Supposed a binary option trader have developed a trading system for trading USD/GBP that achieves a win-rate of 55%. While searching for a binary option broker, he found a Broker A that offers 80% payout and another Broker B who offers 85%.
Let's see the expected return for each of these brokers.
We assume each trade having a deal size of $100, and the trader makes a total of 1000 trades using this system. Based on a win-rate of 55%, the trader will make 550 profitable trades and 450 losing trades.
With Broker A, the expected return is:
Total Gains from Profitable Trades = 550 x $100 x 80% = $44,000
Total Loss from Losing Trades = 450 x $100 = $45,000
Total Profit/Loss = $44,000 - $45,000 = -$1000
With Broker B, the expected return is:
Total Gains from Profitable Trades = 550 x $100 x 85% = $46,750
Total Loss from Losing Trades = 450 x $100 = $45,000
Total Profit/Loss = $$46,750 - $45,000 = +$1,750
| Broker A | Broker B | |
|---|---|---|
| Payout | 80% | 85% |
| Total No. Trades | 1000 | 1000 |
| Trader Win-Rate | 55% | 55% |
| No. of Profitable Trades | 550 | 550 |
| No. of Losing Trades | 450 | 450 |
| Deal Size | $100 | $100 |
| Net Gains from Profitable Trades | $44,000 | $46,750 |
| Net Loss from Losing Trades | $45,000 | $45,000 |
| Net Profit/Loss | -$1,000 | +$1,750 |
As you can see, even though it seems that the difference in breakeven win-rates is only a few percentage points, they actually matter a great deal in the long run.