This type of binary usually displays a chart of the underlying market with a horizontal line representing the underlying market price on a continuous basis. The reality is this is an at-the-money (ATM) binary when you place the trade, where the up arrows and down arrows are displayed with the payout returns you would receive at expiration if the trade ends with a favorable binary outcome.
The binary options at Nadex do not offer a continuous ATM binary choice, but many listed strike levels for set time periods, from 5 minutes to a week in duration before expiring. This gives the trader more choices of strikes that can best fit the trader’s bias; with the risk/reward scenario the trader is most comfortable. Remember as the underlying price moves relative to the fixed strike levels, the profitability changes.
The Nadex trading platform displays only the initial cost and profit, not the return of the trade. The binary price trades between 0 and 100, with the price movement based on the relationship of the underlying market price, the strike, time till expiration and volatility. So if you want to compare apples to apples, the formula is quite simple: the profit/cost = percent return.
Just comparing an ATM binary where the underlying market is trading at or near the strike, the return is around 100 percent (not including the exchange fees). The binary settlement payout is $100 so naturally the price should be in the middle, priced at 50. With the ATM neither the buyer nor seller has an immediate trade advantage prior to expiration. The return for an ATM binary would be around 100% (cost-$50/ profit- $50), but exchange fees would bring that down slightly at a $1.80 RT per contract.
It might be wise to compare returns to make sure you’re getting the best deal when you’re trading binary options.