Binary Trading Facts 5

Question 1

What is the typical duration range for short-term binary options offered by many platforms?

Accepted Answer

From 60 seconds to several hours or end of day

Answer

Binary options often have very short expiries ranging from a minute to hours or the daily close.

Question 2

Which U.S. agency, alongside the CFTC, has warned investors about fraudulent binary options schemes?

Accepted Answer

SEC

Answer

The SEC has issued joint investor alerts with the CFTC regarding binary options fraud.

Question 3

What is meant by the 'settlement value' of a binary option?

Accepted Answer

The final price ($0 or $100) the contract is worth at expiry

Answer

Settlement value is the contract's terminal worth, $100 if in the money or $0 if out of the money.

Question 4

How does the breakeven win rate relate to binary options with payouts below 100%?

Accepted Answer

A trader must win more than half the time to be profitable

Answer

Because losses forfeit the full stake while wins return less than double, a win rate above 50% is needed to profit.

Question 5

What is one legitimate use of binary options for sophisticated traders?

Accepted Answer

Hedging or expressing a view on a specific price level by expiry

Answer

Binary options can be used to hedge or take a defined-risk directional view on whether a price level is reached.

Binary Trading Practice Test