What are Binary Options
Take advantage of exciting trading opportunities, even when the underlying markets are flat, with these simple limited-risk contracts.
What are Binary Options?
Binary Options are straightforward, limited risk derivatives. Based on a simple yes/no proposition, they offer an intuitive way to trade the financial markets with relatively low collateral.
Nadex offers Binary Option trading on these markets:
- Stock indices
Nadex Binary Option prices are based on the value of underlying financial futures and spot forex rates.
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).
Benefits of Trading Binary Options
Binary Options are designed to provide an exciting trading experience, even in flat market conditions.
- Trade with strictly limited risk
- Low collateral required to trade
- Opportunities in volatile and flat markets
- Multiple daily trading opportunities
Binary Options Contracts
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
When a contract expires, we obtain an expiration value based on the specified underlying market, using the following process:
- Take the last 25 trade or midpoint* prices in the underlying market
- Remove the highest five prices and the lowest five prices
- 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)
The market prices we use to calculate the expiration values 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.
For contracts on Economic Events, the expiration value is the figure released by the designated reporting body.
*Midpoints apply to spot forex contracts. For more specific details please see the individual contract in the Nadex Rules.
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.
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.
See what happens when you trade commodities with a Binary Option
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An in-depth guide to placing your first Binary Option trade, from the first step to the last.
See the breakdown of transaction costs associated with trading on Nadex.