Binary Trading Essentials 3

Question 1

If a binary option offers an 80% payout, what does a winning $100 trade return in total?

Accepted Answer

$180 (stake plus $80 profit)

Answer

A winning trade returns the original $100 stake plus the 80% payout of $80, totaling $180.

Question 2

What is a key risk that makes binary options controversial?

Accepted Answer

The negative expected value due to payouts below 100%

Answer

Because winning payouts are under 100% while losses are the full stake, the long-term expected value is negative.

Question 3

A 'one-touch' binary option pays out if the price does what before expiry?

Accepted Answer

Touches a specified target level at least once

Answer

A one-touch option wins if the underlying reaches the target price at any point before expiry.

Question 4

What does a 'put' binary option profit from?

Accepted Answer

The price finishing below the strike

Answer

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

Question 5

Which regulator banned the sale of binary options to retail clients in the EU?

Accepted Answer

ESMA

Answer

ESMA prohibited the marketing and sale of binary options to retail investors in the EU.

Binary Trading Practice Test