Example of a Long Binary Options Trade

trading forex

Let's say you decide to trade IBM stock.

  •     You decide to buy an IBM stock binary option with an expiration of 24 hours
  •     The current price of the IBM share is 120 USD
  •     The option broker sets a long strike price of 124 USD
  •     The profit percentage is 80%
  •     You feel bullish on IBM and decide to go long with a bet of 100 USD
  •     Within 24 hours the binary options contract expires at a price of 127 USD
  •     When you went long and the binary option ended at a price higher than the strike price of 124 USD, you won your trade
  •     Your total return is 180 USD. This consists of a profit of 80 USD (100 USD stake x 80%) and your original stake of 100 USD.

Let's assume that IBM shares had a price of 123 USD at the time the binary options expired. As that is less than the $124 strike price you took, you would have lost the trade. As such, the broker would keep your $100 share.

Example of a Short Binary Options Trade.

Let's look at a short example to make sure you understand how a short binary options trade works. We will say that you feel bearish on the price of bitcoin, so you decide to take a short position.

  •     You decide to take a bitcoin binary option with an expiration of 1 week
  •     The current price of bitcoin is US$6,500
  •     The option broker sets a short strike price of 5,900 USD
  •     The profit percentage is 95%
  •     You feel bearish on bitcoin and decide to place a short order for 500 US dollars
  •     Within 48 hours, the binary options contract expires at a price of 5.850 USD
  •     When you entered a short position and the binary option closed at a price lower than the strike price of 5,900 USD, you won your trade
  •     Your total return is 975 USD. This consists of a profit of 475 USD (500 USD stake x 95%) and your original stake of 500 USD.

Let's assume that the price of Bitcoin was 5.901 USD after the binary options expired. Although you only underperformed by 1 USD, you would have lost your trade. This is because the price of Bitcoin was higher than the strike price of 5.900 USD when the binary options contract expired. As such, you would have lost your $500 bet.

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Profit percentage

In terms of calculating your potential profit in https://exnesslatam.com/, binary options brokers state that this is a profit percentage. If the trade is successful, you would need to multiply the return by your stake.

For example, let's say your chosen binary options trade pays a return of 90% and you bet $100. If you speculate correctly, you will win a profit of $90 ($100 bet x 90%). Of course, you also get back your original bet of $100, so your total return is $190.

The winning percentage ultimately depends on the probability of the outcome coming to fruition. For example, let's say you want to trade binary options on crude oil. At the time of trading, the price of oil is 25 USD per barrel. The binary options broker offers a total of four strike prices - two for those who want to take short positions and two for those who want to take long positions.

In terms of the long position, you can choose between a strike price of 30 USD and 50 USD. In case of the strike price of 30 USD, you may only get a return percentage of 60%. Since the strike price of 50 USD is much less likely, you may receive a return of 95% if successful. At the other end of the spectrum, the options broker may offer a strike price of 20 USD and 10 USD for those who wish to take a short position. The profit percentage is reflected accordingly.