All trading involves risk. Losses can exceed deposits.

Binaries and others guide

All trading involves risk. Losses can exceed deposits.

What are binaries?

Binaries are a limited risk, fast-moving way to trade on price movements and volatility in the underlying market.

Binaries ask whether an event will occur or not. The only possible answers are 'yes' and 'no'.

How binaries work

A binary allows you to take a view on whether a specific outcome will or won't occur. For example, 'Will Wall Street be up at the close of the day?'

• If the answer is 'yes', the binary settles at 100
• If the answer is 'no', the binary settles at 0
• Your profit or loss is the difference between 100 (if the event occurs) or zero (if the event doesn't occur) and the level at which you 'bought' or 'sold'

Binary prices can be extremely volatile even when the underlying market is relatively static. A small movement in the underlying can make all the difference between the binary settling at 0 or 100.

Trading binaries on the FTSE

A binary asks you whether a specific event will occur. The only possible answers are 'yes' and 'no'.

For example, on a FTSE 100 UP, you are being asked whether you think the FTSE 100 will be above 6444.89 at 3pm.

If you disagree, you ‘sell’ this market. If you agree, you ‘buy’ this market.

As with all our markets, the price features a spread. But with a binary, the price is displayed in a range between 0 and 100, such as 86.2 – 89.5. Here, you would ‘buy at 89.5 and ‘sell’ at 86.2.

These prices are dictated by the underlying market price and the time to expiry, and are an indication of how likely we think an event will happen. So, the closer you get to expiry, the closer the price will move to either 0 or 100

However, binaries magnify very small movements in the underlying market. A sharp tick close to expiry could see the binary price move dramatically.

For example, if the underlying market price was at 6458 just five minutes before the expiry of a FTSE 100—UP at 3.00pm [>6444.89], the binary price is likely to be close to 100 as the chance of it expiring above 6444.89 is quite high. However, if the FTSE suddenly kicks down to 6443 and the binary expires below 6444.89, the price will instantly settle at 0 – potentially a massive swing.

Types of binaries

A Ladder binary is a type of Up or Down binary, but asks whether you think the underlying market will finish above a stated level. For example, a 'FTSE® to finish above 5800' Ladder will settle at 100 if the FTSE 100 finishes the day at or above 5800 and at 0 if the FTSE 100 finishes below 5800.

OneTouch

A OneTouch binary asks whether the market will touch or go through the barrier level at any time before the stated expiry. The market will settle at 100 if the level is breached before expiry and settles at 0 if it isn't.

Up or down

Know which direction a market will move in, but not the range? Up or Down binaries are a stripped back version of Ladders, letting you take a position on market direction. A down binary settles at 100 if the underlying market’s closing price is down on its opening price. Conversely, it settles at 0 if the market ends higher.

Targets

Want to take a position on the underlying market finishing within a particular range? Target binaries are the ideal tool. For example, a 'FTSE® to finish down 60-70pts' contract will settle at 100 if the FTSE 100 closes down by between 60 and 70 points, or at zero in all other cases.

Hi-Lo

A Hi-Lo binary is similar to a Target binary, except you take a position on the day's highest or lowest point, not the closing price. It is a question of whether the day's high or low will be a given distance from the previous closing level, for example 'FTSE® cash high to be +50 to +60'.

Example

‘Buying’ volatility on the FTSE

You believe the FTSE 100 will have a big move after the US non-farm payroll is announced, but aren’t sure if this will be up or down. You decide to buy £10 per point of both the ‘FTSE to finish up more than 50 points’ binary – current IG price 8-11, and the ‘FTSE to finish down more than 50 points’ binary – current IG price 6-9.

You’ve paid a total of 20 points (11+9) backing a 50 point FTSE move in either direction. If the non-farms moves the FTSE as much as you expect and it finishes the day up or down more than 50 points, you’ll make 80 points:

100 (all binaries settle at 100 if the statement is true)

- 20 (your stake)

= 80 (at £10 per point, your total profit is £800)

If you were wrong, your maximum loss would have been capped at 200 (20 points x £10) because binaries are strictly limited risk.

'Selling' volatility on the FTSE

You can use binaries to benefit from markets where you expect these will be no movement at all.

The FTSE is currently trading at 6440 and the market is quiet. You don’t believe the FTSE will move any higher than its current level, so you sell £10 per point of the daily ‘FTSE 6440 One Touch’ at 40. By doing this, you have ‘sold volatility’ on the FTSE.

If the FTSE fails to reach more than 6440 by the end of the day, you will make £400 (10 x 40)

If the FTSE breaches 6440 before expiry, you will lose £600 ((100 - 40) x 10)

Binary markets

Indices

IG offers Up/Down, Ladders and One Touches on all major indices, with expiries ranging from 5 minutes to weekly. So whether you have a view on what the FTSE will do over the next few minutes or where Wall Street will be over the course of a week, we have the market for you.

Forex

IG offers Up/Down, Ladders and One Touches on all major FX pairs from 5 minutes to monthly.&nbsp; So if you have a short-term directional view or a long-term volatility view, you have the chance to take a position.

Commodities

Back your view on daily and weekly movements in the underlying oil, gold and silver market using Ladder binaries.

Short-term binaries

We offer five-minute binaries 24 hours a day, across our most popular markets – including Up/Downs on the FTSE 100, Wall Street, Germany 30, EUR/USD, GBP/USD, JPY/USD and AUD/USD.

Looking for superfast binaries? Trade sprint markets and see results in a minute.

Binary specials

We offer a number of binaries on selected markets.

Politics

Our politics-based binaries include the Next UK General Election (based on the parliamentary majority) and the Scottish Independence Referendum.

Economic events

Binaries based on major economic indicators, such as US non-farm payrolls and US initial jobless claims.

Regulation

You should note that binary bets are not subject to regulation by the Financial Conduct Authority. In respect of binary bets, IG Index Ltd is licensed and regulated by the Gambling Commission. Reference number 2628.

How are binaries priced?

Our binary prices are based on the behaviour of an underlying market, but set by our dealing desk.

Each binary is priced between 0 and 100. We make our price according to three factors: time to expiry, the underlying market’s current value, and our expectation of future volatility.

If you think you’re a better judge of volatility than us, you have the opportunity to back your judgement.