The goal of any form of investing, including binary options trading, is to make a profit. Of course, at any given moment, you have to contend with the fact that you may lose a trade. This, in turn, means that you are losing money.
Now, this is an inescapable fact and one that you have to come to terms with. So, how do you make sure that you don’t lose money even when you stand a chance of losing out on trades? The answer is simple – you break even. This, however, leads to a slightly more complicated question: how to break even with binary options trading. Get all the information you need below:
What Does It Mean to Break Even?
Breaking even with binary options simply means to balance out the winning and losing trades. Let’s say that you execute fifty trades within a period of time. Depending on strategies and market conditions, you are going to win a specific number of trades and you are going to lose a certain number.
As you can imagine, the eventual goal is to make a profit. Just as important, however, is to make sure that you are not losing out on any money. This means that you need to be winning enough trades to cover your losses. Winning more will means that you are making a profit.
The breakeven ratio determines how many more trades you will need to win than lose in order to not lose any money.
Calculating the Break Even Ratio
There are two variables you need to have at your disposal to be able to calculate the break even ratio. This is the in-the-money percentage – this is what brokers offer you as a payout percentage. This can range from 65 percent to 80 percent, contingent upon the broker.
Then, you will need to know the out-of-money percentage. This again, depends on your broker. In most instances, you will lose your entire investment. That is, of course, unless your broker offers a rebate percentage. Typically, you can expect your out-of-money percentage to stand between 85 and 100 percent.
The in-the-money percentage is denoted by I while the out-of-money percentage is denoted by Ot. This leaves the break even ratio looking like this:
B = Ot/(I+Ot)
Multiply your answer by 100 to get the break even percentage.
Calculating Pure Profit
Now that you know what it takes to break even, you can also calculate the pure profit that you are making from all of your trades. For this, you will need the break even ratio you have calculated above and your winning ratio. Your winning ratio can be determined by dividing the wins from the total number of trades and then multiplying by hundred.
To calculate your profit ratio, you can use the following formula:
P = W – B
To find the actual profit you have made, you can multiply this answer with (no. of trades made * investment). This will give you your overall profit.
Learning how to break even with binary options trading can be a little complex. It is worth it, however, to know just how many trades you need to win to avoid losing money.