Binary Options: The Odds Examined

Many have stated that Binary Options are impossible to make any money from in the long term and today I have decided to examine whether this is true or not. To do this I have used a random number generator to create a number of scenarios, to determine the degree of accuracy that is required for an individual to be able to make money from trading Binary options. In each scenario I have made a number of assumptions which will be be made clear.

\$100 Dollar Options with 75% Return, 50% Prediction Accuracy
In the first scenario I have assumed that the person making the prediction about the movement of a particular instrument will be right around 50% of the time. With two options and each option being an equally likely occurrence this would be the level accuracy that one would expect over the long term. With a starting balance of \$10,000 I ran 150 trades using these as my assumptions and here are the results.

As you can see the account in this particular scenario lost a considerable amount of money after 150 trades. The final balance was \$8650, the account peaked at \$10275 at its lowest the account had only \$8075. It can be clear seen that the account would have continuously lost money and eventually been made bankrupt in about 1000 trades.

\$100 Dollar Options with 75% Return, 60% Prediction Accuracy
In the second scenario I kept the option return at 75% which is often the max offered in the industry but this time I increased the accuracy of the trader to 60%. Which is more than would be expected if someone randomly decided whether the instrument was going to go up or down.  Again the account started with \$10,000 dollars and I simulated such an account again for 150 trades.  Here are the results.

As you can see when I raised the accuracy of the trader to 60% the trading of binary options with a 75% Return was marginally profitable after 150 trades. The final balance of the simulated account \$10700, the account peaked at \$11000 and at its lowest point had \$9875 in it. This seems to show that if you can predict the direction of instruments with a 60%+ level of accuracy, you will be at least marginally profitable trading 75% Return binaries. But whether this possible is highly questionable.

\$100 Dollar Options with 70% Return, 60% Prediction Accuracy
In the third scenario I lowered the return and kept the rate of prediction at 60% to see whether any substantial return could be made at a lower rate. Again 60% accuracy is higher than what would be suspected if determining the movement of a particular instrument was completely down to luck. Again the simulated account ran for 150 trades and started with \$10,000 Dollars.
Here are the results.

As you can see when I lowered the return to 70% and the kept the accuracy at 60% the trading of binary options was marginally unprofitable. The final balance was \$9980, the account peaked at \$10010 and at its lowest it had only \$8990 in it.

Conclusion

As the majority of binary options returns are between 60%-75%, it can be seen that to be able to guarantee a profit a person must be able to accurately predict the way the market is going to move at least 60% of the time while sticking to the highest returning options. Any lower than this would most likely result in substantial losses for the trader. To be able to guarantee a full time income from such activities would involve a person being able to predict the market movements with at least 70% accuracy. However whether it is possible to be this accurate remains highly questionable.