Binary Trading Facts 3

Question 1

What characteristic makes binary options different from traditional vanilla options?

Accepted Answer

Fixed payout and all-or-nothing outcome

Answer

Binary options have a fixed all-or-nothing payout, unlike vanilla options whose value varies continuously.

Question 2

If a binary option costs $40 on Nadex and finishes in the money, what is the trader's gross profit?

Accepted Answer

$60

Answer

An in-the-money contract settles at $100, so profit is $100 minus the $40 cost, equaling $60.

Question 3

What does 'expiry time' refer to in binary options trading?

Accepted Answer

The moment the contract settles and outcome is determined

Answer

Expiry time is when the option settles and the in/out-of-the-money result is locked in.

Question 4

Many unregulated offshore binary options brokers have been associated with what problem?

Accepted Answer

Fraud and refusal to return funds

Answer

The CFTC and SEC have warned that many offshore binary brokers engage in fraud and refuse withdrawals.

Question 5

A 'put' (or 'low') binary option is profitable when the underlying price does what at expiry?

Accepted Answer

Settles below the strike price

Answer

A put/low binary pays out when the underlying finishes below the strike price.

Binary Trading Practice Test