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Asymmetric Payoff

An asymmetric payoff occurs when the potential gain and potential loss on a trade are materially different.

Why it matters to you

Suppose a binary YES contract costs: $0.20 If it resolves YES at $1: potential gross gain: $0.80 If it resolves NO at $0: potential loss: $0.20 The upside is four times the amount initially paid. But that does not automatically make it a good trade. The outcome may only have a very low probability of occurring. Payoff and probability must always be considered together.

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