What are digital 100s?
Digital 100s are based on a single statement with a yes or no answer, and enable you to speculate on the likelihood of a market event taking place. If you predict the outcome correctly, the trade will return a profit. If not, you’ll lose your original stake.
For example, a typical digital 100 statement might be ‘FTSE 100 to finish up’. You’re then presented with the option to buy the digital 100 if you think the FTSE will be up at the end of the trading day, and to sell if you think it won’t.
The price of a digital 100 ranges from 0 to 100. This price reflects our view on the probability that this event will occur, based on the behaviour of the underlying market and how long the digital 100 has until it expires. The more likely we think it is that the event will occur, the closer the price will be to 100.
If the digital 100 statement is true (in this case, if the FTSE finishes up), the price settles at 100. If it isn’t true (ie if the FTSE finishes down or doesn’t move), it settles at 0. Your profit or loss depends on the amount per point you’ve staked, and the difference between your opening price and the digital 100’s closing price.