Binary Trading Essentials 2

Question 1

What are the only two possible outcomes of a binary option at expiry?

Accepted Answer

Fixed payout or total loss of the stake

Answer

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?

Accepted Answer

Whether price will be above or below the strike at expiry

Answer

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?

Accepted Answer

Price finished above the strike

Answer

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?

Accepted Answer

The reference level that determines win or loss

Answer

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?

Accepted Answer

The payout is fixed and the loss is the full stake

Answer

Because you either receive the fixed payout or lose your entire stake, with no in-between.

Binary Trading Practice Test