Facts Flashcards

What is the typical duration range for short-term binary options offered by many platforms?

Answer: From 60 seconds to several hours or end of day

Binary options often have very short expiries ranging from a minute to hours or the daily close.

Which U.S. agency, alongside the CFTC, has warned investors about fraudulent binary options schemes?

Answer: SEC

The SEC has issued joint investor alerts with the CFTC regarding binary options fraud.

What is meant by the 'settlement value' of a binary option?

Answer: The final price ($0 or $100) the contract is worth at expiry

Settlement value is the contract's terminal worth, $100 if in the money or $0 if out of the money.

How does the breakeven win rate relate to binary options with payouts below 100%?

Answer: A trader must win more than half the time to be profitable

Because losses forfeit the full stake while wins return less than double, a win rate above 50% is needed to profit.

What is one legitimate use of binary options for sophisticated traders?

Answer: Hedging or expressing a view on a specific price level by expiry

Binary options can be used to hedge or take a defined-risk directional view on whether a price level is reached.

Which factor most directly affects a binary option's price as expiry approaches?

Answer: The probability the underlying will finish past the strike

A binary's price tracks the changing probability of an in-the-money finish as time and price evolve.

What distinguishes exchange-traded binary options from those offered by many offshore brokers?

Answer: Exchange-traded ones are regulated and not the trader's counterparty

Regulated exchanges like Nadex match buyers and sellers rather than trading against clients, unlike many offshore brokers.