Binary Trading Essentials 2 — Questions and Answers
Question 1: What are the only two possible outcomes of a binary option at expiry?
- Fixed payout or total loss of the stake (Correct answer)
- Partial profit or partial loss
- Dividend or interest
- Rollover or margin call
Correct answer: Fixed payout or total loss of the stake
A binary option pays a fixed amount if it finishes in-the-money, or the trader loses the staked amount.
Question 2: In a 'high/low' binary option, what is the trader predicting?
- Whether price will be above or below the strike at expiry (Correct answer)
- The exact closing price
- The total daily volume
- The bid-ask spread width
Correct answer: Whether price will be above or below the strike at expiry
High/low options only require predicting direction relative to the strike price at expiry.
Question 3: What does 'in-the-money' mean for a binary call option?
- Price finished above the strike (Correct answer)
- Price finished below the strike
- Price equaled the strike
- The option expired worthless
Correct answer: Price finished above the strike
A binary call is in-the-money when the underlying price is above the strike at expiry.
Question 4: What is the 'strike price' in a binary option?
- The reference level that determines win or loss (Correct answer)
- The broker's commission
- The maximum payout cap
- The expiry timestamp
Correct answer: The reference level that determines win or loss
The strike price is the threshold the underlying must finish above or below to win.
Question 5: Why are binary options often described as 'all-or-nothing' instruments?
- The payout is fixed and the loss is the full stake (Correct answer)
- They never expire
- They guarantee profit
- They pay continuous interest
Correct answer: The payout is fixed and the loss is the full stake
Because you either receive the fixed payout or lose your entire stake, with no in-between.
Question 6: What typically determines a binary option's expiry?
- A preset time chosen when the trade is opened (Correct answer)
- The trader's account balance
- The underlying's dividend date
- The exchange opening bell only
Correct 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.
Question 7: What is the underlying asset in a binary option?
- The market the option's outcome is based on, like a stock or currency pair (Correct answer)
- The broker's reserve fund
- The payout percentage
- The trading platform software
Correct answer: The market the option's outcome is based on, like a stock or currency pair
The underlying asset is the stock, index, commodity, or currency pair whose price decides the outcome.
Binary Trading Essentials 2
What are the only two possible outcomes of a binary option at expiry?