Broker’s Edge Calculator

Binary trading is advertised as commission-free trading. Indeed, there is no spread to pay, like there is in Forex, and there is no fee per trade, like there is in stocks. Binary options commission or house advantage resides in the difference between option’s potential return (payout) and option’s out-of-money reward (if any).

You can use the calculator below to find out your broker’s edge on a particular binary trade given the payout amount and the out-of-money reward. It is similar to house edge in a game of roulette. This edge (commission) calculator assumes that the chance of winning is 50%. Of course, a skillful trader chooses proper entry direction and timing to skew the chances in his or her own favor, but the goal of this free calculator is to allow some estimation and comparison of broker’s commission.

Between 1 and 100.
Between 0 and 100.
Enter 0 if none.

Two models of option pricing and settlement

Traditional

Traditionally, a binary option is priced between $0 and $100, depending on the current underlying price, time to expiration, market volatility, and other factors. When the option settles, it does so either in-the-money or out-of-the-money. If a former case, your actual profit is $100 minus the price of the option (premium). If the option settles out-of-the-money, you get $0, which means that your total loss is the premium that you have paid for that option.

In this case, the broker's edge is based on the price of the option, and more specifically, on the difference between the price they can sell you this option and the price they can buy this same option back from you (so called early close). This model is mostly used for the exchange-traded binary options and is rarely employed in the online binary options industry. Notable exceptions are NADEX and Binary.com.

Fixed price

A binary option can be sold by a broker at some fixed price (premium), for example, $100. When the option settles in-the-money, it wins the price paid for the option ($100) plus some percentage of its price (which makes it similar to a stake in gambling), for example 85%. If the out-of-money reward is offered by the broker, the adverse settlement of the binary option results in return of some small percentage of the stake, for example, 10%. As you can see by inputting the values in the calculator above, there is little practical point in the out-of-money reward - its main goal is to create emotional reinforcement to a losing trader.

Worth noting is that with this model, unlike with the traditional option pricing model, the potential risk is always higher than the potential gain. Traditional binary options pricing allows traders to use much more favorable risk-to-reward ratio whereas with fixed price options, the R/R ratio is always less than 1.

Binary options trading involve risk. Although the risk of executing a binary options open is fixed for each individual trade, it is possible to lose all of the initial investment in a course of several trades or in a single trade if the entire capital is used to place it. It is not recommended to base your investment decisions on any information presented on or originating from BinaryTrading.com. By browsing this website you express your acceptance of the terms of this disclaimer and that BinaryTrading.com cannot be deemed responsible for any losses that may occur as a result of your binary option trading. BinaryTrading.com is not licensed or registered as a financial consultant or adviser. BinaryTrading.com is neither a broker, nor funds manager. The website does not provide any paid services. All content of BinaryTrading.com is presented for educational or entertainment purposes only.

General Risk Warning: Trading in Binary Options carries a high level of risk and can result in the loss of your investment. As such, Binary Options may not be appropriate for you. You should not invest money that you cannot afford to lose. Before deciding to trade, you should carefully consider your investment objectives, level of experience and risk appetite. Under no circumstances shall we have any liability to any person or entity for (a) any loss or damage in whole or part caused by, resulting from, or relating to any transactions related to Binary Options or (b) any direct, indirect, special, consequential or incidental damages whatsoever.

BinaryTrading.com is compensated partially through the affiliate commission earned from some of the listed brokers.

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