A probability estimate can exceed a contract’s displayed price ratio and still fail to cover trading costs. The relevant threshold uses the complete cash flows, including when each fee is charged.
Start with the specified cash flows
The CFTC/SEC binary-options alert describes payouts tied to a yes/no proposition and warns about platform fraud. It does not establish a universal fee schedule. The following calculation is original analysis of an invented contract, not a description of an available product. CFTC/SEC — Investor Alert: Binary Options and Fraud
A fee changes the hurdle even when the payout is unchanged
Assume a hypothetical contract costs $60 and pays a total of $100 if its event occurs, or zero otherwise. Ignoring financing and fees, expected profit is 100p minus 60, where p is the event probability. The break-even probability is 60%.
Now add a $2 entry fee charged regardless of outcome. Expected profit becomes 100p minus 62, so break-even rises to 62%. If a further $1 fee applies only to a winning payout, expected profit becomes 99p minus 62. The threshold is 62 divided by 99, approximately 62.63%.
Suppose an analyst estimates the event probability at 61%. Before fees, the invented contract has expected profit of $1. With the entry and winning-outcome fees, expected profit is 99 multiplied by 0.61, minus 62, or minus $1.61. The assumed forecast is unchanged; the cash-flow model changes the conclusion.
This is an expected-value calculation across uncertain outcomes, not a promise about one trade or repeated profitability. The probability estimate might be inaccurate, and observations of the same underlying event are not automatically independent opportunities.
An early sale introduces a different cash-flow path. If a contract is sold before settlement, the exit price and exit charges replace the assumed final payoff. Applying the settlement formula to that trade would answer the wrong question.
Where fees are rounded, capped, charged per order or linked to position size, scaling up the one-contract example may not reproduce the actual schedule. The schedule must be modelled on its own terms.
Write a payoff table before assessing the forecast
List the entry payment and each possible later receipt or charge. Mark whether a cost applies in every outcome, only on a win, or only on an early exit. Distinguish total payout from profit.
Then compare the complete hurdle with a documented probability estimate and its uncertainty. A narrow apparent margin deserves especially careful scrutiny because even small omitted costs can change its sign.