What are Binary Options

Take an opinion on the top financial markets with limited risk, short-term, innovative binary options.


Binary Options

What are Binary Options?

Binary options are limited risk contracts based on a simple yes/no market proposition offering traders ways to trade the most active markets with relatively low collateral.

Nadex offers Binary Option trading on some of the most heavily traded financial markets:

Intro to Binary Options Video

Binary Options Online

How do Binary Options work?

A Binary Option asks a simple yes/no question.

Will the price of gold be above $1625 at 1:30pm?

If you think yes, you buy the Binary Option. If you think no, you sell.

The price at which you buy/sell is not the actual price of gold, but rather a value between zero and 100.

For example, Gold > 1625 (1:30PM) may be priced at 42.50/48.50. The first figure is the bid price (sell), the second is the offer price (buy).

The bid/offer price fluctuates throughout the day, but always settles at either 100 (if the answer is yes) or zero (if the answer is no). Your profit/loss is calculated using the difference between the settlement price (zero or 100) and your opening price (the price you bought or sold at).

Markets to Trade

Benefits of Trading Binary Options

  • Limited risk - The maximum amount you can lose is your original investment
  • Low collateral required to trade - Binary contracts are priced between 0 and $100
  • Multiple daily trading opportunities - Short-term expirations ranging from 20 minutes to one week
  • Trading opportunities in both volatile and flat markets 

You can open an account for free in five minutes to start trading innovative Nadex Binary Options.

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Binary Options Contracts

Expiration Times

When we list Binary Options on a market, we provide multiple opportunities to trade with different expiration times. These can be split into four categories:

  • Intraday – at times within the current trading day
  • Daily – at times within 24 hours of listing
  • Weekly – at the end of the current trading week
  • Event-based – at a specified future time and date

Expiration Value

When a contract expires, we obtain an expiration value based on the specified underlying market, using the following process:

Indices and Commodities:

  1. Take the last 25 trade prices in the underlying market
  2. Remove the highest 5 prices and the lowest 5 prices
  3. Take the arithmetic average of the remaining 15 prices and round to one decimal point past the point of precision of the underlying market (with the exception of Wall Street 30, which is rounded to the same point as the underlying market)

Forex:

  1. Take the last 10 midpoint prices in the underlying market
  2. Remove the highest 3 prices and the lowest 3 prices
  3. Take the arithmetic average of the remaining 4 prices and round to one decimal point past the point of precision of the underlying market

The market prices we use to calculate the expiration values for Indices and Commodities contracts are obtained through a data feed from Reuters. If Reuters is unavailable, we may obtain market pricing data through Bloomberg or another data provider that we deem appropriate under the circumstances.

The market prices we use to calculate the expiration values for Forex contracts are obtained through a proprietary data feed (“NadexFX”) comprised of quotes from 12 well known banking institutions. If NadexFX is unavailable, we may obtain market pricing data through Bloomberg or another data provider that we deem appropriate under the circumstances.

For contracts on Economic Events, the expiration value is the figure released by the designated reporting body.

For Bitcoin contracts, the expiration value is the last tick before expiration of the Tera® Bitcoin Price Index.

For more specific details please see the individual contract in the Nadex Rules.

Settlement

Binary Options are cash-settled contracts that settle with an all-or-nothing payout if left to expiration. 

  • If the condition of the contract is achieved, the settlement value is 100
  • If the condition is not achieved, the settlement value is 0

It is possible to close a contract prior to expiration, either to take profits or cut losses.

Strike Prices

The strike price of a Binary Option is the level of the underlying market against which the option is settled. In a 'Gold >$950 at 1:30PM' contract, for example, the strike price is $950.

We list a range of strike prices for each expiration time. For example, Nadex lists 23 different strike prices for each daily gold expiration – staggered at intervals of $3.

Binary Options

 

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Trading Examples

Step-by-step Guide

In-depth guide to placing your first binary option trade

See our guide

Fees

See the breakdown of transaction costs when trading on Nadex.

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