Mixed Deck — All Binary Trading Topics Flashcards

What does 'platform latency' mean in binary trading?

Answer: The delay between a trader's action and the platform's response or trade execution

Platform latency refers to the delay in trade execution, which can be critical in binary trading where even seconds can change the outcome of a trade.

What is a 'two-factor authentication (2FA)' feature on a binary trading platform?

Answer: An additional security layer requiring a second verification step to access an account

2FA adds a second layer of account security by requiring traders to verify their identity via a second method (like a mobile code) in addition to their password.

Where does a trade close and get settled?

Answer: At the expiry time

In binary options trading, the outcome of a trade is determined precisely at a predetermined expiry time. Unlike traditional options where positions can sometimes be closed early, binary options are 'all or nothing' contracts that automatically settle at their specified expiration. The trader's prediction is evaluated at that exact moment to ascertain profit or loss.

What does 'one-click trading' on a binary options platform mean?

Answer: A feature that allows instant trade execution with a single button press

One-click trading enables traders to execute a binary option trade instantly with a single button press, reducing latency in fast-moving markets.

A pairing/correlation strategy uses what relationship between two assets?

Answer: How their prices tend to move together or inversely

Correlation strategies exploit predictable relationships where assets move together or in opposition.

What regulatory warning has the CFTC and FBI issued regarding binary options?

Answer: Many offshore binary options platforms are fraudulent scams that steal deposits from US investors

Both the CFTC and FBI have issued formal warnings that a significant number of offshore binary options platforms are operating as scams, refusing withdrawals and manipulating software.

What does 'in-the-money' mean for a binary call option?

Answer: Price finished above the strike

A binary call is in-the-money when the underlying price is above the strike at expiry.

Call and Put are the terms given to what?

Answer: Buying or selling an option

In binary options, 'Call' and 'Put' are fundamental terms representing the two possible directions of a trade. A Call option is bought when a trader predicts the asset's price will rise above a certain level by expiry, while a Put option is bought when they predict the price will fall below a certain level. These terms define the core action of speculating on price movement.

What is the role of the stochastic oscillator in a binary reversal strategy?

Answer: It identifies overbought and oversold conditions for timing entries

The stochastic oscillator flags overbought/oversold zones, helping time potential reversals.

What is the 'gambler's fallacy' and how does it relate to binary options?

Answer: The false belief that past trade outcomes affect the probability of future independent binary option results

The gambler's fallacy is the mistaken belief that after a string of losses, a win is 'due,' when in reality each binary option outcome is an independent event.

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.

In a candlestick-pattern strategy, what does a bearish engulfing pattern suggest?

Answer: A potential downward move favoring a PUT

A bearish engulfing candle signals sellers overpowering buyers, hinting at a downward move.

What is the maximum loss a trader can incur on a single standard binary option position?

Answer: The full premium paid

A binary option's downside is capped at the premium (stake) paid to enter the trade.

What does a 'put' binary option profit from?

Answer: The price finishing below the strike

A binary put pays out when the underlying finishes below the strike at expiry.

What typically determines a binary option's expiry?

Answer: A preset time chosen when the trade is opened

Binary options have a fixed expiry time set at the moment the position is opened.

What does 'out-of-the-money' (OTM) mean at expiry for a binary call option?

Answer: The asset price is below the strike price, resulting in a total loss of the premium

A binary call option expires out-of-the-money when the underlying asset's price is below the strike price, and the entire trade amount is lost.

The trend-following strategy is based on which core principle?

Answer: The trend is likely to continue until clear reversal signals appear

Trend-following assumes momentum persists, so traders enter in the direction of the established trend.

What is the main appeal that attracts beginners to binary options?

Answer: Simple yes/no outcomes and known risk per trade

Their simplicity and clearly defined risk per trade make them appealing to newcomers.

What should a trader verify before depositing with a binary options broker?

Answer: That it is registered with the appropriate regulator

Confirming regulatory registration is the most important step before funding any account.

What is 'loss aversion' in trading psychology?

Answer: The tendency for traders to feel the pain of losses more intensely than the pleasure of equivalent gains

Loss aversion is a psychological bias where the emotional pain of a loss feels roughly twice as intense as the pleasure of an equal gain, often leading to poor decisions.