You will learn about the following concepts
- What is a payout?
- Different payout rates for different options
- Choosing a broker with good payouts
Let us assume that you have initiated a trade with 2000$, and the winning percentage of the position is 80%. The trade closes in your favor, or in-the-money. In this case the payout will be 2000$ + 80% of those 2000$, or 1600$. The total payout of your trade will be 3600$. The max payout you may get is visible on your platform, so you will be aware of the possible outcome at any moment.
Different payout rates for different options
We should note that different options contracts have various payout rates. Basically, if you get a payout rate above the average from one trade, this does not mean the same will happen on the next trade. The payouts will vary between 65% and 90% depending on the trade. If you, however, come across rates, which are lower than those mentioned above, you might want to start looking for another broker. In some cases brokers will allow the trader to get a partial refund in case of out-of-the-money scenario.
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The percentages of such refunds are usually quite low. However, some traders might choose not to get this money back, which will influence the potential payout rates as well. The following changes might be seen when choosing the full payout option:
Refund: 70% payout, 15% refund possibility, 85% profit trade.
Full Payout: 85% payout with a 0% refund possibility in an 85% payout profit trade.
How to choose the best payout
One of the most common mistakes made by novice traders is their attempt to hit the jackpot with a single trade. It is better if you start building your account with a series of smaller payouts, rather than going for the big one, because in 90% of the cases the outcome will be quite unfortunate for your account.
In order to help you better understand the topic, we will give you two practical examples. Let’s say there are two traders, trader A and trader B. Trader A is looking for the jackpot and goes for huge returns that will help him/her multiply the size of the account. On the other hand, trader B tries another approach and wants to build his/her account via a string of small trades.
The final goal of both traders is the same. However, the number of executed trades is going to be different. The question is which approach is better, while the answer is that both traders have equal chances to achieve their goals. There is no way to know which trade will work and which will not.
Is there a way to develop a specific strategy? Unfortunately, if trader A achieves the goal and trader B is forced to repeat the actions until achieving the goal as well, they should both be aware of the fact that everything is possible and the situation may change in just a few minutes. However, experienced traders would tell you that the strategy of trader B is preferred to that of trader A, because it is more conservative.