How do I trade Binary Options?

About Binaries

Binary Basics
Binaries and Options

Frequently Asked Questions

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Binaries

Binaries enable you to potentially profit from short-term fluctuations in market movements and economic events. BUY if you believe the market price will rise or the economic event will occur. SELL if you think the opposite. If your insight is correct at the expiration date, you make $100.

The advantages of trading Binaries are:

• Small size: $0-100 contracts
• Limited risk: you know your potential gain or loss in advance
• Person-to-person market: you trade with other HedgeStreet members

Choose BUY if you expect the underlying to end above the strike price at expiration. Make $100 if the underlying ends up above the strike price; otherwise, lose your initial investment.

Choose SELL if you expect the underlying to NOT end above the strike price at expiration. Make $100 if the underlying does NOT ends up above the strike price; otherwise, lose your initial investment.

Binaries Description

Binaries have the following characteristics:

• A Binary is a $100 contract between a buyer and a seller (both HedgeStreet members) - the buyer taking the position that a certain strike price will be reached or a certain event will happen on the expiration date, and the seller taking the position that it will not.
• Buyers and sellers trade contracts at prices based on their sense of the perceived likelihood that a price will or will not rise, or an event will or will not happen. Thus, the value of each Binary is equivalent to the probability of the corresponding situation, as the potential gain is always a fixed amount of $100 per contract.
• Since the value of each Binary is equal to the perceived probability of the event occurring, all contracts can be immediately compared. For example, if an event appears to have an 80% chance of happening, the buyer pays $80 per contract, and the seller pays the balance of the $100 contract, or $20.
• If the price of the underlying exceeds the strike price or the event does happen on the expiration date, the buyer receives $100, and the seller gets $0, thereby losing their initial investment.
• If the price of the underlying does not exceed the strike price or the event does not happen on the expiration date, the seller receives $100, and the buyer gets $0, thereby losing their initial investment.

Cash requirement:
The cash requirement is the maximum that can be lost if the predicted outcome does not occur. For the buyer, it is the contract price. For the seller, it is $100 minus the contract price.

Final payout:
At expiration, the payout is always $100 per Binary. The buyer receives $100 if the price of the underlying exceeds the strike price or the event does happen and $0 otherwise. The seller receives $100 if the price of the underlying is equal to or below the strike price or event does not happen and $0 otherwise.

Additionally, traders can close out their positions prior to expiration by selling (in the case of an initial buyer) or buying (in case of an initial seller) their Binaries at any time before the last trading date. In such cases, the profit and loss is the difference between the price received and the price paid.