For those of you who don’t know, maximum option size is the maximum amount of money you can bet on each binary trade. If maximum option size does not seem like a familiar term to you, then you may have heard it be referred to as maximum trade amount. The minimum and maximum amount you can bet is determined by the broker you choose to trade with. Before you start trading, let’s look deeper into maximum option size, so you may be more knowledgeable when you start placing your bets.
Why option sizes are restricted (both minimum and maximum)?
Before diving into this question, first we much explain how a binary option broker makes money. There are two ways a broker makes money. One way is by charging commission on all purchased contracts. Traders are allowed to bet against each other, and when one trader loses to the other, the broker gets commission on what the winning trader earns. The second way a binary option broker makes money is by profiting from losing trades. To give an example, let’s say a broker has 200 clients. One hundred of those clients bet that an asset will go up by the expiry time, and the other 100 clients bet that it will fall. Each client bets $100 making the betting pool add up to $20,000. By the expiry time, the asset went up, and the losing traders lost their initial investment ($100). The winners will gain their initial investment back, plus 80% of the losing bets. This means that each winner gets $180, and the broker makes a $2,000 profit ($20,000 -$18,000 = $2,000). This example is the main reason why there are restricted option sizes.
In a perfect world, winners and losers will always be 50/50. In an ideal world, the broker will be able to get as close to 50/50 as possible, the winners will always outweigh the losers, or more money was placed on the losing side than the winning side. Now, let’s say there are no minimum or maximum option size restrictions, and the number of winners outweigh the losers and/or more money was placed on the winning side than the losing side. That would mean that the broker may have to pay more money to the winners than the total amount he received from the losers. That could potentially be a lot of money he is losing, especially if there is a great significant difference between the winning and losing bets. Restrictions prevent this situation from happening by making sure bets on both sides are not hugely outweighing the other.
How does the typical maximum option size look like?
The typical maximum option size ranges from $1,000 all the way up to $20,000. There are more brokers within the $5,000 – $10,000 range than in the $10,000 – $20,000 range. Some brokers may increase a client’s own maximum trade amount if requested. It is very rare to see brokers offer maximum option sizes over $20,000.
Is the maximum size restricted to certain assets?
Most binary option brokers or sites do not restrict the maximum option size to certain assets. If they do, they will place restrictions on short term and long term trades. For example, Boss Capital has two maximum option sizes, one for short term trades and one for long term trades. For short term trades the maximum option size is 5,000 $/€/£, and the maximum option size for long term trades is 7,500 $/€/£.
What brokers offer the highest maximum option size?
Both Trade Rush and Option Fair have a maximum option size of $5,000, but Option Fair may increase that amount upon request. CT Option’s max is $10,000 and may increase that amount upon request as well. Other broker’s maximum option size is as followed:
- Stock Pair – $6,000
- 10Trade – $10,000
- Zone Option – $15,000
- Grand Option $20,000
- 24 Option $100,000
You now know everything you need to know about maximum option size. Few people try to learn about the binary option trade. By doing so, you are at least one step ahead of other traders, and you are more likely to make smarter trading decisions.