Binary Trading Facts 2

Question 1

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

Accepted Answer

The full premium paid

Answer

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

Question 2

A binary option that expires 'in the money' typically pays out which of the following?

Accepted Answer

A fixed predetermined amount

Answer

Binary options have a fixed, all-or-nothing payout regardless of how far in the money they finish.

Question 3

In the United States, which regulator oversees legally traded binary options on designated exchanges?

Accepted Answer

CFTC

Answer

The CFTC regulates U.S. binary options traded on designated contract markets such as Nadex.

Question 4

What does the 'strike price' represent in a binary option?

Accepted Answer

The price level that determines the win/loss outcome

Answer

The strike price is the threshold the underlying must be above or below at expiry to win.

Question 5

A 'call' (or 'high') binary option profits when the underlying asset's price does what relative to the strike at expiry?

Accepted Answer

Finishes above the strike

Answer

A call/high binary pays out if the underlying settles above the strike price.

Binary Trading Practice Test