The most Frequently Asked Questions concerning binary options are listed and answered below.
What is a binary option?
A binary option, also referred to as a digital option or an all-or-nothing, is an option in which payout is determined at the onset of the contract. The trader receives a fixed amount of return if the option expires in-the-money, irrespective of how much the price of the underlying asset has moved. The trader never actually owns the asset. It is the security upon which an options contract is based.
What is an underlying asset?
A commodity, index, stock, or Forex pair that can be traded as a binary option.
What is a Call option?
An option that provides the trader with a predetermined profit when the underlying asset is higher at the time of expiration than at the time it was purchased.
What is a Put option?
An option that provides the trader with a predetermined profit when the underlying asset price is lower than when it was purchased.
What is the investment amount?
The amount of money invested in the option.
How do I invest?
1. Choose the asset that you want to invest in.
2. Choose a Call or Put option for the underlying asset.
3. Choose the expiry time for the trade.
4. Enter the amount of the investment. You may cancel the selection by clicking “X” or similar any time before the transaction is approved.
5. Click “Apply” or similar.
6. Approve the trade.
What return will I get for a successful investment?
A successful investment will result in a guaranteed return. If the prediction is correct, the trader receives a refund of the stake plus a return on investment that is typically 71-88%.
What return will I get on any given binary option trade in the event that the option expires out-of-the-money?
You will receive a small proportion of your original stake. The balance will be deducted from your investment account.
What is the minimum amount to purchase a single option?
Some options brokers let you start at $1 (or currency equivalent).
What is the maximum amount to purchase a single option?
Some options brokers offer up to $3,000 (or currency equivalent).
What are the levels displayed in the trading boxes?
A level is the quoted price for an option of an underlying asset. The level changes and is updated frequently according to different parameters that binary options brokers’ proprietary algorithms take into account. The levels presented in the trading boxes are those at which brokers are willing to sell options.
What is the expiry rate?
The expiry rate is the price of the underlying asset at the time of expiry of the option. This rate determines if the option has expired in-the-money or out-of-the-money. A different expiry rate is determined for each underlying asset.
What is the expiry time?
The expiry time is the time and date when the trade ends. If your forecast is correct at this time, you will be “in-the-money”.
What is the difference between purchasing options at a binary broker and buying Put and/or Call options in the stock market?
The options available at a broker are binary options (refer to the first question for a detailed definition). They are different to standard (“vanilla”) option chains that are offered by stock exchanges. The latter typically have longer expiry dates, significantly fluctuating yields, and can be sold before expiry. Binary options have a fixed return and are offered for different expiry points from the end of an hour to the end of a month.
Are the profits taxable?
As a options broker’s customer, you are responsible for your taxation liabilities, if any, at your place of residence.
Why can I not invest?
All assets are available during market trading hours. On rare occasions, investments are not available for certain assets owing to technical reasons. Usually, these problems are resolved quickly and you may try again shortly. Other than this, you will not be able to invest if you have insufficient funds in your account.
Where can I view the precise trading hours of each asset?
A detailed list of all available assets, their description, expiry times, symbol and trading hours is presented in the Platform Asset Index at the website of a binary options broker.