Examples: Binary Options

Example 1: Buying FTSE to finish up

FTSE has had a quiet day and with 20 minutes to go to the end of trading the index is down 24 points from the previous close. You think there is a chance the market will recover before the end of the session and end in positive territory, however.

Our price for the Daily FTSE to finish up is 0 - 2.

You decide to buy 2 contracts at 2, the offer price. Each contract is worth 10 per point, so you are only risking 40, plush the commission.

The FTSE drifts up over the next 20 minutes, and at 16.29 is standing just a few points lower than the previous day's close. A few minutes later, after the closing auction, the official settlement is posted: up 3.2 from the previous settlement! Despite only ever risking 40 you have cleared nearly 2000 profit.

Profit on trade

Example 2: Buying a Wall Street 0/+20 Binary Option

It is half an hour before the close of Wall Street, and the index is standing 15.5 points below the previous day's official settlement price. You think the market will rally before the close and end up on the day.

We quote a variety of Binary Options with different targets for the net change of the daily settlement price of Wall Street. Our price for the market to finish between unchanged and up-20 points (0/+20) is 6.8 - 9.5.

You decide to buy 5 contracts at 9.5, the offer price. Each contract is worth $10 per point. So you are risking 9.5 x 5 contracts x $10 = $475. You also know that, should the underlying market indeed finish up on the day, your position will be worth 100 x 5 contracts x $10 = $5000.

This represents a potential return of over 1000%, decided in the next thirty minutes.

Ten minutes later, Wall Street has rallied and is up 2.5 points on the day. Our quote for the 0/+20 Binary Option is now 53.2 - 56.2. You decide to take your profit rather than risk waiting for the settlement price. You close the position at our bid price of 53.2.

Profit on trade

Example 3: Selling a E/$ Up Binary Option

It is midday and the euro against the US dollar is standing 20 points below the previous day's settlement price (the price at 8pm London time). You think the market is not likely to recover by the end of the day.

Our price for the euro/dollar to finish up is 38 - 41.5.

You decide to sell 10 contracts at 38, the bid price. Each contract is worth $10 per point. The worst outcome for you would be for the euro/dollar to finish up and therefore for the Binary Option to expire at 100. So you are risking (100 - 38) x 10 contracts x $10 = $6200. Should the underlying market not finish up on the day, however, the option would be worthless, meaning that you would make 38 x 10 contracts x $10 = $3800.

Several hours later, the exchange rate has recovered slightly but is still 10 points down on the day. Our quote for the E/$ Up Binary Option is now 11.8 - 15.3. You could take your profit here, but decide to hold on to the expiry.

At 8pm London time, the E/$ finishes just 4 points lower than the previous day's 8pm price. It's close, but the E/$ has finished down and therefore the E/$ Up Binary Option expires at 0.

Profit on trade