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In this discussion of the new book, "Where India Goes: Abandoned Toilets, Stunted Development and the Costs of Caste," by r. i.c. e. co-founders, Diane Coffey and. Writing about how caste system-based medieval notions of purity and cleanliness are impeding progress toward eliminating the practice of open defecation in rural India, author. This article reports on a new survey of social attitudes and behaviors. We use representative phone survey methods to study explicit prejudice against women and. Open defecation, which is still practiced by about a billion people worldwide, is one of the most examples of how place influences health in developing. Binary Option. What is a 'Binary Option' A binary option, or asset-or-nothing option, is type of option in which the payoff is structured to be either a fixed amount of compensation if the option expires in the money, or nothing at all if the option expires out of the money. The success of a binary option is thus based on a yes or no proposition, hence “binary”. A binary option automatically exercises, meaning the option holder does not have the choice to buy or sell the underlying asset. BREAKING DOWN 'Binary Option' Difference Between Binary and Plain Vanilla Options. Binary options are significantly different from vanilla options. Plain vanilla options are a normal type of option that does not include any special features. A plain vanilla option gives the holder the right to buy or sell an underlying asset at a specified price on the expiration date, which is also known as a plain vanilla European option. While a binary option has special features and conditions, as stated previously. Binary options are occasionally traded on platforms regulated by the Securities and Exchange Commission (SEC) and other regulatory agencies, but are most likely traded over the Internet on platforms existing outside of regulations. Because these platforms operate outside of regulations, investors are at greater risk of fraud. Conversely, vanilla options are typically regulated and traded on major exchanges. For example, a binary options trading platform may require the investor to deposit a sum of money to purchase the option. If the option expires out-of-the-money, meaning the investor chose the wrong proposition, the trading platform may take the entire sum of deposited money with no refund provided. Binary Option Real World Example. Assume the futures contracts on the Standard & Poor's 500 Index (S&P 500) is trading at 2,050.50. An investor is bullish and feels that the economic data being released at 8:30 am will push the futures contracts above 2,060 by the close of the current trading day. The binary call options on the S&P 500 Index futures contracts stipulate that the investor would receive $100 if the futures close above 2,060, but nothing if it closes below. The investor purchases one binary call option for $50. Therefore, if the futures close above 2,060, the investor would have a profit of $50, or $100 - $50. What is the history of binary options? Binary options trading is option trading for which there are two possible results. A trader purchases an option and at the expiration of the option period. If the option is profitable, it generates approximately an 80% return on the trader's investment. If the option is not profitable, the trader loses whatever amount of money he had paid for the option. Binary options are very simple to trade, even for inexperienced investors, and binary options trading requires very little starting capital – usually no more than a few hundred dollars. Binary options trading for the average retail trader essentially began with the U. S. Securities and Exchange Commission's approval for exchange trading of these options in 2008. Since then, it has expanded and spread very rapidly. Binary options had, in fact, existed for many years before 2008, but they were previously available only to large, institutional traders or high net worth individuals through the over-the-counter market. In 2007, the Options Clearing Commission recommended changes in binary options trading that would make them freely available for retail traders, and in 2008, the SEC approved the offering of binary options as a tradeable investment instrument. Shortly thereafter, the Chicago Board Options Exchange (CBOE) and the American Stock Exchange began offering binary options for public trading. Early on, binary options trading was still complex and challenging for retail traders. Initially, only call options were available on the CBOE. Two factors led to the explosion of binary options trading: first, the broadening of the types of options available, accompanied by significant improvements in trading platform software that greatly simplified the trading of binary options. Another factor was the introduction of binary options in forex trading, where they gained popularity much more quickly than they had in stock and futures trading. Today, there is growing flexibility in binary options trading. Traders can specify not only the amount of money they wish to risk on an option, but its strike price and expiration period. It is possible to purchase insurance on a binary options trade by opting for a lower payout percentage, in exchange for which the trader will only lose part – rather than all of his option investment – if the option is not profitable at expiration. Binary options are available across virtually all tradeable financial assets, with a variety of contract types and expiration periods ranging from one minute to one year. There are hedge funds that primarily focus on binary options trading. In the forex markets, binary options trading was initially only available through specialized brokers. Recently, regular forex brokers have added binary options trading platforms for their clients. Binary options trading will likely continue to increase in popularity in the foreseeable future. Trading Using Binary Options. In the US, there are a number of assets and securities available for trade through binary options. A binary option is a derivative its value is derived from an underlying security or asset. The binary option holder does not own the underlying security, nor have claim to it. Rather, the binary option becomes profitable or worthless based on the price movements of the underlying security. Binary options provide an alternative way to trade these underlying securities, which include stock and volatility indexes, foreign currency (forex) pairs, and commodities. Where Binary Options Are Traded. In the US, binary options are legally traded through the Nadex exchange and the Chicago Board Options Exchange (CBOE). Nadex provides the most binary options, as well as the most actively traded binary options in the country. A broker is not required for trading Nadex products. An account is set up with the exchange itself, and trades are made through a provided platform. The CBOE offers two binary options products. In order to trade these products, clients need a standard brokerage account with options trading capabilities. Available Binary Options Securities. Binary options are based on a number of underlying securities and events. Nadex provides trading in stock indexes, forex pairs, commodities, spreads, and economic announcements. Figure 1. Stock Indexes Tradable Through Nadex Binary Options. Nadex binary options are also traded based on the spot price of the following underlying forex pairs: EURUSD, GBPUSD, USDJPY, EURJPY, AUDUSD, USCCAD, GBPJPY, USDCHF, EURGBP and AUDJPY. Seven commodities are tradable via binary options on Nadex. ​ Figure 2. Commodities Tradable Through Nadex Binary Options. Binary options are also traded based on the outcome of three major economic news events. Figure 3. Events Tradable Through Nadex Binary Options. All the above products--stock indexes, forex pairs, commodities, and events--are also available for trade through a binary option called a "bull spread." This option provides both a ceiling and floor, capping the profit and loss no matter how far the underlying market moves. The CBOE offers two binary options products one of which is the only binary option tied directly to volatility. Figure 4. CBOE Binary Option Products. When trading binary options in the US, there are a number of underlying securities and assets available. Nadex is the main provider, offering binary options on stock indexes, forex pairs, commodities, and events. Nadex binary options are traded through the Nadex trading platform, and a broker isn't required. CBOE binary options are limited to the S&P 500 and Volatility Index, and are traded through options eligible brokerage accounts. Various binary options products are traded outside the US, based on similar underlying assets. Binary Options. 8. Binary Options. Binary options can go by many other names. On forex or interest rate markets, they are called digital options. On the American Stock Exchange they are called fixed-return options (FROs) or all-or-nothing options. They are called binary because they offer returns in only two outcomes: something (for example, a preset amount of $100) or nothing. Generally the following assets can be used for binary options day trading: There are many types of binary options, but there are two that day traders more commonly use: The cash-or-nothing binary option, which pays a predetermined amount of cash if the option is in-the-money on expiry. The asset-or-nothing binary option, which pays the value of the underlying security. This is why these options are named binary options. There are only two potential results when purchasing this investment. The idea of day trading binary options is quite simple. A trader’s intention is to open a trade position and then to close it within the same trading day. Note that all binary options contracts have expiry dates and times, which means that the standard binary options contract has a fixed expiry date unless a platform that the trader is using offers a variable option expiry. For day traders, it is important to select an expiry date that will terminate the trade within the same trading day, as once the trade has become active with a set expiry date, the trader is unable to manually close the position as is possible with other types of option trades. The potential return, when buying a binary option, is already calculated and known by the day trader before the purchase is made. And since binary options can be exercised on almost any financial product and in either direction (call or put), day trading with binary options can be easy and profitable resulting in high returns that are immediately paid out. Besides the potential of high returns, binary options offer the day trader several benefits: Traders can choose variable time expiries to suit various strategies. Traders manage their own accounts. There are no brokers involved which mean lower costs. Traders can simultaneously trade diversified options. Traders can make small, multiple initial investments, providing an accessible form of day trading with a limited risk. With one successful trade, it is possible to make up for many losses. Traders have constant opportunities to profit throughout the day. There is no unnecessary downtime. Some traders find day trading binary options both rewarding and exhilarating. The potential gain is high, and the turnaround can be remarkably speedy. With constant expansion in the binary options market, there is always a new opportunity for the day trader to capitalize on. Due to the private method of trading in this market, there is a high degree of innate security. With the transparency of risks and short timeframes involved in the day trading of binary options, volatility is less of an issue. Smart day traders follow trends and patterns in the market. By recognizing one true trend, they can attain continued profits without needing to adjust their strategies. However, if the trend is not working due to the short trade times, false trends can be exited quickly and any loss can be minimized. Trading Forex With Binary Options. Binary options are an alternative way to play the foreign currency (forex) market for traders. Although they are a relatively expensive way to trade forex compared with the leveraged spot forex trading offered by a growing number of brokers, the fact that the maximum potential loss is capped and known in advance is a major advantage of binary options. But first, what are binary options? They are options with a binary outcome, i. e., they either settle at a pre-determined value (generally $100) or $0. This settlement value depends on whether the price of the asset underlying the binary option is trading above or below the strike price by expiration. Binary options can be used to speculate on the outcomes of various situations, such as will the S&P 500 rise above a certain level by tomorrow or next week, will this week’s jobless claims be higher than the market expects, or will the euro or yen decline against the US dollar today? Say gold is trading at $1,195 per troy ounce currently and you are confident that it will be trading above $1,200 later that day. Assume you can buy a binary option on gold trading at or above $1,200 by that day’s close, and this option is trading at $57 (bid)$60 (offer). You buy the option at $60. If gold closes at or above $1,200, as you had expected, your payout will be $100, which means that your gross gain (before commissions) is $40 or 66.7%. On the other hand, if gold closes below $1,200, you would lose your $60 investment, for a 100% loss. Buyers and Sellers of Binary Options. For the buyer of a binary option, the cost of the option is the price at which the option is trading. For the seller of a binary option, the cost is the difference between 100 and the option price and 100. From the buyer’s perspective, the price of a binary option can be regarded as the probability that the trade will be successful. Therefore, the higher the binary option price, the greater the perceived probability of the asset price rising above the strike. From the seller’s perspective, the probability is 100 minus the option price. All binary option contracts are fully collateralized, which means that both sides of a specific contract – the buyer and seller – have to put up capital for their side of the trade. So if a contract is trading at 35, the buyer pays $35, and the seller pays $65 ($100 - $35). This is the maximum risk of the buyer and seller, and equals $100 in all cases. Thus the risk-reward profile for the buyer and seller in this instance can be stated as follows: Buyer – Maximum risk = $35. Maximum reward = $65 ($100 - $35) Seller – Maximum risk = $65. Maximum reward = $35 ($100 - $65) Binary options on forex are available from exchanges like Nadex, which offers them on the most popular pairs such as USD-CAD, EUR-USD and USD-JPY, as well as on a number of other widely traded currency pairs. These options are offered with expirations ranging from intraday to daily and weekly. The tick size on spot forex binaries from Nadex is 1, and the tick value is $1. The intraday forex binary options offered by Nadex expire hourly, while the daily ones expire at certain set times throughout the day. The weekly binary options expire at 3 p. m. on Friday. In the frenetic world of forex, how is the expiration value calculated? For forex contracts, Nadex takes the midpoint prices of the last 25 trades in the forex market, eliminates the highest five and lowest five prices, and then takes the arithmetic average of the remaining 15 prices. From December 15, 2014, for forex contracts, Nadex has proposed to take the last 10 midpoint prices in the underlying market, remove the highest three and lowest three prices, and take the arithmetic average of the remaining four prices. Let’s use the EUR-USD currency pair to demonstrate how binary options can be used to trade forex. We use a weekly option that will expire at 3 p. m. on Friday, or four days from now. Assume the current exchange rate is EUR 1 = USD 1.2440. Consider the following two scenarios: (a) You believe the euro is unlikely to weaken by Friday, and should stay above 1.2425. The binary option EURUSD>1.2425 is quoted at 49.0055.00. You buy 10 contracts for a total of $550 (excluding commissions). At 3 p. m. on Friday, the euro is trading at USD 1.2450. Your binary option settles at 100, giving you a payout of $1,000. Your gross gain (before taking commissions into account) is $450, or approximately 82%. However, if the euro had closed below 1.2425, you would lose your entire $550 investment, for a 100% loss. (b) You are bearish on the euro and believe it could decline by Friday, say to USD 1.2375. The binary option EURUSD>1.2375 is quoted at 60.0066.00. Since you are bearish on the euro, you would sell this option. Your initial cost to sell each binary option contract is therefore $40 ($100 - $60). Assume you sell 10 contracts, and receive a total of $400. At 3 p. m. on Friday, let’s say the euro is trading at 1.2400. Since the euro closed above the strike price of $1.2375 by expiration, you would lose the full $400 or 100% of your investment. What if the euro had closed below 1.2375, as you had expected? In that case, the contract would settle at $100, and you would receive a total of $1,000 for your 10 contracts, for a gain of $600 or 150%. Additional Basic Strategies. You do not have to wait until contract expiration to realize a gain on your binary option contract. For instance, if by Thursday, assume the euro is trading in the spot market at 1.2455, but you are concerned about the possibility of a decline in the currency if US economic data to be released on Friday are very positive. Your binary option contract (EURUSD>1.2425), which was quoted at 49.0055.00 at the time of your purchase is now at 7580. You therefore sell the 10 option contracts you had purchased at $55 each, for $75, and book a total profit of $200 or 36%. You can also put on a combination trade for lower risklower reward. Let’s consider the USDJPY binary option to illustrate. Assume your view is that volatility in the yen – which is trading at 118.50 to the dollar – could increase significantly, and it could trade above 119.75 or decline below 117.25 by Friday. You therefore buy 10 binary option contracts – USDJPY>119.75, trading at 29.5035.50 – and also sell 10 binary option contracts – USDJPY>117.25, trading at 66.5072.00. Therefore, you pay $35.50 to buy the USDJPY>119.75 contract, and $33.50 (i. e., $100 - $66.50) to sell the USDJPY>117.25 contract. Your total cost is thus $690 ($355 + $335). Three possible scenarios arise by option expiration at 3 p. m. on Friday: The yen is trading above 119.75 : In this case, the USDJPY>119.75 contract has a payout of $100, while the USDJPY>117.25 contract expires worthless. Your total payout is $1,000, for a gain of $310 or about 45%. The yen is trading below 117.25 : In this case, the USDJPY>117.25 contract has a payout of $100, while the USDJPY>119.75 contract expires worthless. Your total payout is $1,000, for a gain of $310 or about 45%. The yen is trading between 117.25 and 119.75 : In this case, both contracts expire worthless and you loss the full $690 investment. Binary options have a couple of drawbacks: the upside or total reward is limited even if the asset price spikes up, and a binary option is a derivative product with a finite time to expiration. On the other hand, binary options have a number of advantages that make them especially useful in the volatile world of forex: the risk is limited (even if the asset prices spikes up), collateral required is quite low, and they can be used even in flat markets that are not volatile. These advantages make forex binary options worthy of consideration for the experienced trader who is looking to trade currencies. What You Need To Know About Binary Options Outside the U. S. Binary options are a simple way to trade price fluctuations in multiple global markets, but a trader needs to understand the risks and rewards of these often-misunderstood instruments. Binary options are different from traditional options. If traded, one will find these options have different payouts, fees and risks, not to mention an entirely different liquidity structure and investment process. ( For related reading, see: A Guide To Trading Binary Options In The U. S. ) Binary options traded outside the U. S. are also typically structured differently than binaries available on U. S. exchanges. When considering speculating or hedging, binary options are an alternative, but only if the trader fully understands the two potential outcomes of these exotic options. In June 2013, the U. S. Securities and Exchange Commission warned investors about the potential risks of investing in binary options and charged a Cyprus-based company with selling them illegally to U. S. investors. What Are Binary Options? Binary options are classed as exotic options, yet binaries are extremely simple to use and understand functionally. The most common binary option is a "high-low" option. Providing access to stocks, indices, commodities and foreign exchange, a high-low binary option is also called a fixed-return option. This is because the option has an expiry datetime and also what is called a strike price. If a trader wagers correctly on the market's direction and the price at the time of expiry is on the correct side of the strike price, the trader is paid a fixed return regardless of how much the instrument moved. A trader who wagers incorrectly on the market's direction loses herhis investment. If a trader believes the market is rising, shehe would purchase a call. If the trader believes the market is falling, shehe would buy a put. For a call to make money, the price must be above the strike price at the expiry time. For a put to make money, the price must be below the strike price at the expiry time. The strike price, expiry, payout and risk are all disclosed at the trade's outset. For most high-low binary options outside the U. S., the strike price is the current price or rate of the underlying financial product, such as the S&P 500 index, EURUSD currency pair or a particular stock. Therefore, the trader is wagering whether the future price at expiry will be higher or lower than the current price. (For more, see What is the history of binary options? ) Foreign Versus U. S. Binary Options. Binary options outside the U. S. typically have a fixed payout and risk, and are offered by individual brokers, not on an exchange. These brokers make their money from the percentage discrepancy between what they pay out on winning trades and what they collect from losing trades. While there are exceptions, these binary options are meant to be held until expiry in an "all or nothing" payout structure. Most foreign binary options brokers are not legally allowed to solicit U. S. residents for trading purposes, unless that broker is registered with a U. S. regulatory body such as the SEC or Commodities Futures Trading Commission. Starting in 2008, some options exchanges such as the Chicago Board Options Exchange (CBOE) began listing binary options for U. S. residents. The SEC regulates the CBOE, which offers investors increased protection compared to over-the-counter markets. Nadex is also a binary options exchange in the U. S., subject to oversight by the CFTC. These options can be traded at any time at a rate based on market forces. The rate fluctuates between one and 100 based on the probability of an option finishing in or out of the money. At all times there is full transparency, so a trader can exit with the profit or loss they see on their screen in each moment. They can also enter at any time as the rate fluctuates, thus being able to make trades based on varying risk-to-reward scenarios. The maximum gain and loss is still known if the trader decides to hold until expiry. Since these options trade through an exchange, each trade requires a willing buyer and seller. The exchanges make money from an exchange fee – to match buyers and sellers – and not from a binary options trade loser. High-Low Binary Option Example. Assume your analysis indicates that the S&P 500 is going to rally for the rest of the afternoon, although you're not sure by how much. You decide to buy a (binary) call option on the S&P 500 index. Suppose the index is currently at 1,800, so by buying a call option you're wagering the price at expiry will be above 1,800. Since binary options are available on all sorts of time frames – from minutes to months away – you choose an expiry time (or date) that aligns with your analysis. You choose an option with an 1,800 strike price that expires 30 minutes from now. The option pays you 70% if the S&P 500 is above 1,800 at expiry (30 minutes from now) if the S&P 500 is below 1,800 in 30 minutes, you'll lose your investment. You can invest almost any amount, although this will vary from broker to broker. Often there is a minimum such as $10 and a maximum such as $10,000 (check with the broker for specific investment amounts). Continuing with the example, you invest $100 in the call that expires in 30 minutes. The S&P 500 price at expiry determines whether you make or lose money. The price at expiry may be the last quoted price, or the (bid+ask)2. Each broker specifies their own expiry price rules. In this case, assume the last quote on the S&P 500 before expiry was 1,802. Therefore, you make a $70 profit (or 70% of $100) and maintain your original $100 investment. Had the price finished below 1,800, you would lose your $100 investment. If the price had expired exactly on the strike price, it is common for the trader to receive herhis money back with no profit or loss, although each broker may have different rules as it is an over-the-counter (OTC) market. The broker transfers profits and losses into and out of the trader's account automatically. Other Types of Binary Options. The example above is for a typical high-low binary option – the most common type of binary option – outside the U. S. International brokers will typically offer several other types of binaries as well. These include "one touch" binary options, where the price only needs to touch a specified target level once before expiry for the trader to make money. There is a target above and below the current price, so traders can pick which target they believe will be hit before expiry. A "range" binary option allows traders to select a price range the asset will trade within until expiry. If the price stays within the range selected, a payout is received. If the price moves out of the specified range, then the investment is lost. As competition in the binary options space ramps up, brokers are offering more and more binary option products. While the structure of the product may change, risk and reward is always known at the trade's outset. Binary option innovation has led to options that offer 50% to 500% fixed payouts. This allows traders to potentially make more on a trade than they lose - a better reward:risk ratio – though if an option is offering a 500% payout, it is likely structured in such a way that the probability of winning that payout is quite low. Some foreign brokers allow traders to exit trades before the binary option expires, but most do not. Exiting a trade before expiry typically results in a lower payout (specified by broker) or small loss, but the trader won't lose his or her entire investment. The Upside and Downside. There is an upside to these trading instruments, but it requires some perspective. A major advantage is that the risk and reward are known. It does not matter how much the market moves in favor or against the trader. There are only two outcomes: win a fixed amount or lose a fixed amount. Also, there are generally no fees, such as commissions, with these trading instruments (brokers may vary). The options are simple to use, and there is only one decision to make: is the underlying asset going up or down? There are also no liquidity concerns, because the trader never actually owns the underlying asset, and therefore brokers can offer innumerable strike prices and expiration timesdates, which is attractive to a trader. A final benefit is that a trader can access multiple asset classes in global markets generally anytime a market is open somewhere in the world. The major drawback of high-low binary options is that the reward is always less than the risk. This means a trader must be right a high percentage of the time to cover losses. While payout and risk will fluctuate from broker to broker and instrument to instrument, one thing remains constant: losing trades will cost the trader more than shehe can make on winning trades. Other types of binary options (not high-low) may provide payouts where the reward is potentially greater than the risk. Binary Options. A binary option is a type of option where the payoff depends on both the price levels of the strike and the underlying asset, like standard options. If the underlying market is higher than the strike price of the binary option at expiration, it is considered to be “in the money” or true, and the buyer of the binary option would receive a fixed payout of $100 per contract. If at expiration the underlying market is at or below the strike price of the binary, it is considered “out of the money” or false and the seller of the binary option would receive the $100.00. The binary statement is a simple "yes" or "no" proposition to which you either agree or disagree. If you think "yes, it will happen," you buy the binary. If you disagree and think "no, it won’t happen," you sell the binary. Unlike standard option contracts, the binary option does not give Mike and Jason the right to buy or sell the underlying asset. At expiration, it’s over! The binary is worth $100 per contract - Who’s right? Mike or Jason? The binary traded price for Mike and Jason is not the actual price of silver, but rather a weighted dollar value of the fixed $100 payout. The binary pricing will range between 0 and 100 and can be described as being the probability and market perception of whether the binary proposition will be true or false at expiration. Even though the underlying silver futures market is trading for $20.18, the March binary silver option contract to be above $20.40 at 1.30pm tomorrow, is priced at $14$15. Let’s assume Mike and Jason traded this binary at $14. The binary pricing constantly changes throughout the duration of the option, which depends on the underlying silver price compared to the strike. Mike is long two contracts at $14 his cost is $28. Jason is short two contracts at $14 his cost is $172, calculated as (100 - 14) x 2. Mike wants the binary price to rally and settle at 100. Jason wants the binary price to sell off and settle at 0. At 1:30 p. m. tomorrow, the binary expires. If silver remains below $20.40, the settlement price will be 0 and Jason receives $100 for each contract or $200 total. His net profit is $28 (or $200 gross profit – $172 cost of shorting the option), and Mike gets nothing. On the other hand, if silver rallies and finishes above $20.40 at expiration, the settlement price will be 100 and Mike receives $100 for each contract or $200 total. His net profit is $172 (or $200 gross profit - $28 cost of buying the option), and Jason gets nothing. Both Jason and Mike have clearly defined risk and payout terms given their market view for silver futures using binary options. The contracts are fully collateralized so each party’s initial cost will be the other party’s net profit at expiration if they are correct. Binary options offer a multitude of trading opportunity choices ranging from the underlying markets of spot FX, commodity and stock index futures, duration choices of two-hour, one-day and weekly options, as well as a vast array of strike price levels - all with limited risk tailored to your liking. Futures, options and swaps trading involves risk and is not appropriate for all investors. A Guide to Trading Binary Options in the U. S. Binary options are based on a simple yes or no proposition: Will an underlying asset be above a certain price at a certain time? Traders place trades based on whether they believe the answer is yes or no, making it one of the simplest financial assets to trade. This simplicity has resulted in broad appeal amongst traders and newcomers to the financial markets. As simple as it may seem, traders should fully understand how binary options work, what markets and time frames they can trade with binary options, advantages and disadvantages of these products, and which companies are legally authorized to provide binary options to U. S. residents. Binary options traded outside the U. S. are typically structured differently than binaries available on U. S. exchanges. When considering speculating or hedging, binary options are an alternative, but only if the trader fully understands the two potential outcomes of these exotic options. (For related reading, see What You Need To Know About Binary Options Outside The U. S. ) U. S. Binary Options Explained. Binary options provide a way to trade markets with capped risk and capped profit potential, based on a 'yes' or 'no' proposition. For example: Will the price of gold be above $1,250 at 1:30 p. m. today? If you believe it will be, you buy the binary option. If think gold will be below $1,250 at 1:30 p. m., then you sell this binary option. The price of a binary option is always between $0 and $100, and just like other financial markets, there is a bid and ask price. The above binary may be trading at $42.50 (bid) and $44.50 (offer) at 1 p. m. If you buy the binary option right then you will pay $44.50, if you decide to sell right then you'll sell at $42.50. Let's assume you decide to buy at $44.50. If at 1:30 p. m. the the price of gold is above $1,250, your option expires and it becomes worth $100. You make a profit of $100 - $44.50 = $55.50 (less fees). This is called being in the money. But if the price of gold is below $1,250 at 1:30 p. m., the option expires at $0. Therefore you lose the $44.50 invested. This called out of the money. The bid and offer fluctuate until the option expires. You can close your position at any time before expiry to lock in a profit or a reduce a loss (compared to letting it expire out of the money). Eventually every option settles at $100 or $0 $100 if the binary option proposition is true, and $0 if it turns out to be false. Thus each binary option has a total value potential of $100, and it is a zero-sum game – what you make someone else loses, and what you lose someone else makes. Each trader must put up the capital for their side of the trade. In the examples above, you purchased an option at $44.50, and someone sold you that option. Your maximum risk is $44.50 if the option settles at $0, therefore the trade costs you $44.50. The person who sold to you has a maximum risk of $55.50 if the option settles at $100 ($100 - $44.50 = $55.50). A trader may purchase multiple contracts, if desired. Another example: NASDAQ US Tech 100 index > $3,784 (11 a. m.). The current bid and offer is $74.00 and $80.00, respectively. If you think the index will be above $3,784 at 11 a. m., you buy the binary option at $80 (or place a bid at a lower price and hope someone sells to you at that price). If you the think the index will be below $3,784 at that time, you sell at $74.00 (or place an offer above that price and hope someone buys it from you). You decide to sell at $74.00, believing the index is going to fall below $3,784 (called the strike price) by 11 a. m. And if you really like the trade, you can sell (or buy) multiple contracts. Figure 1 shows a trade to sell five contracts (size) at $74.00. The Nadex platform automatically calculates your maximum loss and gain when you create an order, called a ticket. Nadex Trade Ticket with Max Profit and Max Loss (Figure 1) The maximum profit on this ticket is $370 ($74 x 5 = $370), and the maximum loss is $130 ($100 - $74 = $26 x 5 = $130) based on five contracts and a sell price of $74.00. (For more on this topic, see Introduction To Binary Options. ) How the Bid and Ask are Determined. The bid and ask are determined by traders themselves as they assess the probability of the proposition being true or not. In simple terms, if the bid and ask on a binary option are at 85 and 89, respectively, then traders are assuming a very high probability that the outcome of the binary option will be yes, and option will expire worth $100. If the bid and ask are near 50, traders are unsure if the binary will expire at $0 or $100 – it's even odds. If the bid and ask are at 10 and 15, respectively, that indicates traders think there is a high likelihood the option outcome will be no, and expire worth $0. The buyers in this area are willing take the small risk for a big gain. While those selling are willing to take a small – but very likely – profit for a large risk (relative to their gain). Where to Trade Binary Options. Binary options trade on the Nadex exchange, the first legal U. S. exchange focused on binary options. Nadex provides its own browser-based binary options trading platform which traders can access via demo account or live account. The trading platform provides real-time charts along with direct market access to current binary option prices. Binary options are also available through the Chicago Board Options Exchange (CBOE). Anyone with an options-approved brokerage account can trade CBOE binary options through their traditional trading account. Not all brokers provide binary options trading, however. Each Nadex contract traded costs $0.90 to enter and $0.90 to exit. The fee is capped at $9, so purchasing 15 lots will still only cost $9 to enter and $9 to exit. If you hold your trade until settlement and finish in the money, the fee to exit is assessed to you at expiry. If you hold the trade until settlement, but finish out of the money, no trade fee to exit is assessed. CBOE binary options are traded through various option brokers each charge their own commission fee. Pick Your Binary Market. Multiple asset classes are tradable via binary option. Nadex offers trading in major indices such as the Dow 30 (Wall Street 30), the S&P 500 (US 500), Nasdaq 100 (US TECH 100) and Russell 2000 (US Smallcap 2000). Global indices for the United Kingdom (FTSE 100), Germany (Germany 30) and Japan (Japan 225) are also available. Trades can be placed on forex pairs: EURUSD, GBPUSD, USDJPY, EURJPY, AUDUSD, USDCAD, GBPJPY, USDCHF, EURGBP, as well as AUDJPY. Nadex offers commodity binary options related to the price of crude oil, natural gas, gold, silver, copper, corn and soybeans. Trading news events is also possible with event binary options. Buy or sell options based on whether the Federal Reserve will increase or decrease rates, or whether jobless claims and nonfarm payrolls will come in above or below consensus estimates. (For more on this topic, see Exotic Options: A Getaway From Ordinary Trading. ) The CBOE offers two binary options for trade. An S&P 500 Index option (BSZ) based on the the S&P 500 Index, and a Volatility Index option (BVZ) based on the CBOE Volatility Index (VIX). Pick Your Time Frame. A trader may choose from Nadex binary options (in the above asset classes) that expire hourly, daily or weekly. Hourly options provide opportunity for day traders, even in quiet market conditions, to attain an established return if they are correct in choosing the direction of the market over that time frame. Daily options expire at the end of the trading day, and are useful for day traders or those looking to hedge other stock, forex or commodity holdings against that day's movements. Weekly options expire at the end of trading week, and are therefore traded by swing traders throughout the week, and also by day traders as the options' expiry approaches on Friday afternoon. Event-based contracts expire after the official news release associated with the event, and therefore all types of traders take positions well in advance of - and right up to - the expiry. Advantages and Disadvantages. Unlike the actual stock or forex markets where price gaps or slippage can occur, the risk on binary options is capped. It's not possible to lose more than the cost of the trade. Better-than-average returns are also possible in very quiet markets. If a stock index or forex pair is barely moving, it's hard to profit, but with a binary option the payout is known. If you buy a binary option at $20, it will either settle at $100 or $0, making you $80 on your $20 investment or losing you $20. This is a 4:1 reward to risk ratio, an opportunity which is unlikely to be found in the actual market underlying the binary option. The flip side of this is that your gain is always capped. No matter how much the stock or forex pair moves in your favor, the most a binary option option can be worth is $100. Purchasing multiple options contracts is one way to potentially profit more from an expected price move. Since binary options are worth a maximum of $100, that makes them accessible to traders even with limited trading capital, as traditional stock day trading limits do not apply. Trading can begin with a $100 deposit at Nadex. Binary options are a derivative based on an underlying asset, which you do not own. Therefore, you're not entitled to voting rights or dividends that you'd be entitled to if you owned an actual stock. Binary options investopedia. The smallest one, working with your own can you make money with binary options approach to the potentially weakening jobs market. Adding a line chart as you can ride his coattails profitably. When there is nothing to regret. It did not understand what you feel about that. 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