Things To Know About Binary Trading

What is a Binary Option?

A binary option is a financial product where the parties involved in the transaction are assigned one of two outcomes based on whether the option expires in the money. 

Binary options depend on the outcome of a "yes or no" proposition, hence the name "binary." Binary options have an expiry date and/or time. At the time of expiry, the price of the underlying asset must be on the correct side of the strike price (based on the trade taken) for the trader to make a profit.

How a Binary Option Works?

A binary option may be as simple as whether the share price of ABC will be above $25 on April 22, 2021, at 10:45 a.m. The trader makes a decision, either yes (it will be higher) or no (it will be lower). 

Let's say the trader thinks the price will be trading above $10 on that date and time and is willing to stake $100 on the trade. If ABC shares trade above $10 at that date and time, the trader receives a pay-out per the terms agreed. For example, if the pay-out was 70%, the binary broker credits the trader's account with $70.

If the price trades below $10 at that date and time, the trader was wrong and loses their $100 investment in the trade.

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