Facts Flashcards
7 cards from real Binary Trading practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Facts flashcards as text
What characteristic makes binary options different from traditional vanilla options?
Answer: Fixed payout and all-or-nothing outcome
Binary options have a fixed all-or-nothing payout, unlike vanilla options whose value varies continuously.
If a binary option costs $40 on Nadex and finishes in the money, what is the trader's gross profit?
Answer: $60
An in-the-money contract settles at $100, so profit is $100 minus the $40 cost, equaling $60.
What does 'expiry time' refer to in binary options trading?
Answer: The moment the contract settles and outcome is determined
Expiry time is when the option settles and the in/out-of-the-money result is locked in.
Many unregulated offshore binary options brokers have been associated with what problem?
Answer: Fraud and refusal to return funds
The CFTC and SEC have warned that many offshore binary brokers engage in fraud and refuse withdrawals.
A 'put' (or 'low') binary option is profitable when the underlying price does what at expiry?
Answer: Settles below the strike price
A put/low binary pays out when the underlying finishes below the strike price.
What underlying markets can binary options commonly be based on?
Answer: Forex, indices, commodities, and stocks
Binary options are offered on forex pairs, stock indices, commodities, and individual equities.
What is the term for the price of a binary option, which also reflects its implied probability of finishing in the money?
Answer: Premium
The premium (cost) of a binary roughly reflects the market's implied probability of an in-the-money finish.