Binaries are a form of options trading that ask you to make a decision between two opposite outcomes. If you predict the outcome correctly, the trade will return a profit. If not, you’ll lose your original stake.
A binary example
For example, a typical binary question might be ‘Will the FTSE 100 finish up today?’. If you choose to trade this binary, you’ll be presented with the option to buy if you think the outcome will arise, or sell if you don’t.
Buy and sell prices are priced out of 100, and determined by the behaviour of the underlying market and how long the binary has until it expires. If the binary statement comes true (in this case, the FTSE finishes the day up), the price will settle at 100. If it doesn’t come true (the FTSE finishes down or with no movement), it will settle at 0.
Determining profit or loss
Your profit or loss will be determined by the difference between the price at which you opened your position, and the price at which your position is closed. You don’t have to wait for binary to expire before closing your position.
Why trade binaries?
There are several key benefits to binaries:
- They are extremely flexible, with a wide range of different timescales available from 60 seconds to several months
- They can be used to trade a huge variety of different markets around the world – you can even trade events like interest rate decisions or general elections
- You know exactly what you stand to lose, or gain, before you trade
- Because a binary can be used to trade a huge variety of outcomes, they can offer opportunity even when markets are flat, or in a downward spiral.
Find out more about trading binaries with IG