When Trading Binary Options- What are the Benefits?

When Trading Binary Options- What are the Benefits?
When Trading Binary Options- What are the Benefits
When Trading Binary Options- What are the Benefits Getty Images

Whether you have been trading binary options with Nadex for a while, or are just getting started, there are several benefits to think about. There are no stop outs, no whipsaws and you cannot lose more than the defined risk, which is limited and known before you ever enter the trade. The risk is the amount put up to enter the trade. You can do one contract or hundreds. There is no extra margin and never a margin call. Everything is known upfront.

When you are trading binary options, keep in mind that they are short term, fast moving contracts with only two possible expiration/settlement values: 0 or 100. A binary is a true/false statement and at expiration, the event happened or it did not. Another benefit of trading with Nadex is the opportunity to exit before expiration. If the outcome of the binary is in question, in order to cut losses or protect profits, you can exit before expiration.

Binaries can be traded in volatile, trending or flat markets. Even if the market is not volatile, it allows you to leverage the volatility of the Nadex binary itself for potential high percentage capped returns on small investments or potential high probability capped returns on moderate investments in short-time frames without having uncapped risk like many traditional markets.

There is limited risk on binaries. The floor of $0 caps the risk of long positions and the profit of short positions. The ceiling of $100 caps the risk of short positions and the profit of long positions. Binaries offer small contract sizes. Traders never risk more than $100 per lot. However, multiple lots can be traded.

Since binaries are settled at cash value of the option, there is no delivery of physicals. You will not have to worry about taking delivery of barrels of oil, ounces of gold or silver, or stock certificates.

When considering which strike is best for the strategy you are trading, be sure to look at the midpoint for the probability of the binary expiring above the strike. Let’s look at an example to understand better how this works.

Suppose the EUR/USD is currently trading at 1.11654 and you decide to buy EUR/USD >1.1161 3PM for $77.50. Your maximum risk is $77.50; your maximum reward is $22.50. You can sell for $72.25. Midpoint or mid-price is $74.87. Find this by adding the bid and offer prices together and then dividing by two. The midpoint shows the probability of that strike price at that second in time expiring above the strike. In this example, it has a $74.87 percent chance the binary will expire above the strike.

Let’s look at the same strike price, but assume you want to sell it for $70.75. This time your maximum risk would be $29.25 with your maximum reward of $70.75. You can buy for $76.25, which makes your midpoint $73.50. At this second in time, price point believes in a 73.50 percent chance the binary will expire above the strike. This puts the probability in favor of buying, not selling this contract.

Binaries have different durations and expirations, from five-minutes to weekly contracts. They offer amazing benefits for all markets offering the chance to collect profits using various strategies depending on whether the market is directional, flat or volatile.

The information contained above may have been prepared by independent third parties contracted by Nadex. In addition to the disclaimer below, the material on this page is for informational and educational purposes only and should not be considered an offer or solicitation to buy or sell any financial instrument on Nadex or elsewhere. Please note, exchange fees may not be included in all examples provided. View the current Nadex fee schedule. Nadex accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representations or warranties are given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk and any trading decisions that you make are solely your responsibility. Trading on Nadex involves financial risk and may not be appropriate for all investors. Past performance is not necessarily indicative of future results. Nadex contracts are based on underlying asset classes including forex, stock index futures, commodity futures, cryptocurrencies, and economic events.

Trading can be volatile and investors risk losing their investment on any given transaction. However, the design of Nadex contracts ensures investors cannot lose more than the cost to enter the transaction. Nadex is subject to U.S. regulatory oversight by the CFTC.