The Success Ratio in Binary Trading
Ultimately, it all boils down to money and hence the success rate.
It’s great that you are trading forex binaries – it’s fun, easy to do, and gives you an opportunity to trade forex without betting the farm. It’s another great way to generate income.
Is it? How do you know?
In a previous article about the disadvantages we touched in passing on an important aspect of binary trading – the win ratio. Yes, ultimately trading is all about the success ratio and success rate.
You would remember that if the broker paid you 70% on a winning trade and nothing at all on a losing one, it could be easily calculated that you would need to win 58.82% of all your trades, just to break even.
New traders often lose sight of this important aspect, and most binary brokers don’t seem to be very keen to highlight it. The brokers will likely tom-tom only the high return per winning trade they offer.
Before you start to trade, it is useful to understand what you need to do to make money – ultimately, that’s the objective.
Very simply, you need to have more winning trades than losing ones for your trading account to end in the green. That’s sounds like a motherhood statement, but it’s easier said than done. How many more winning trades, you might ask.
Here’s the formula that will help you calculate your target of the minimum number of binary trades you should win to just break even. If your win ratio is better, you finally turn in a profit. If it’s less, you are losing money.
Breakeven ratio = (Out of the money penalty%) / [(In the money profit payout%+(Out of the money penalty%)]
Let’s see how this formula works with an example. Assume you want to trade a binary option on the currency pair USD/JPY. You find that the broker offers a payout of 70% on a winning USD/JPY trade. On the other hand, on a losing trade, you lose 100% of amount you staked on the binary trade.
Obviously, in this scenario, the “In the money profit payout%” is 70% and the “Out of the money penalty%” is 100%. Substituting these values in the formula and calculating:
Breakeven Ratio = 100%/(70%+100%) = 58.82%
This means that out of 100 binary trades in USD/JPY you need to win 59 to just break even – no profit, no loss. You would make a profit if you won more than 58.82% of your trades, and a loss if the number of wins was less than that ratio.
Keep this in sight when you trade binary options.
Keeping track of your trading account
Here’s a suggestion – before you start your trading day, take a few minutes to analyze your past track record. You can open the platform’s Completed Trades page to glean the data you need for your analysis.
1. Check how much money you have made or lost till date as follows:
- Trading account balance today = say, $X
- Total amounts you transferred as deposits to the broker = $Y
- Total amounts you withdrew from your trading account= $Z
Then, your profit (+) or loss (-) till date = X-Y+Z
You can also copy-paste your trade details into an excel sheet and sort it to get an asset-wise break-up. This should tally with your total profit or loss obtained above.
2. Check your asset-wise win ratio as follows:
- Total number of trades = A
- Total number of wins = B
- Win ratio = B/A%
This daily exercise will provide you a wake-up call on exactly how your trading is progressing, and answer the question, “Am I making money and what is my success rate?”