Binary
Options are based on an underlying security, commodity, or currency
that have various strike prices to choose from as well as various
expirations. Both call and put Binary Options are available for
trading. If, at expiration, the price of the underlying security
closes at or above the selected strike price, the buyer of a call
Binary Option receives the payoff. If the underlying security closes
at a price that is below the strike price on the expiration date, the
buyer receives nothing.
In
the case of put Binary Options, the put buyer receives the payoff per
contract if the underlying security closes below the strike price at
expiration, and nothing if the underlying security closes at or above
the strike price at expiration.
The
price of a Binary Option usually reflects the perceived probability
that the underlying security price will reach or exceed (for call
Binary Options) or fail to reach or exceed (for put Binary Options)
the selected strike price at expiration. The cost of Binary Options
will normally be quoted at a price per contract. The trader can buy
multiple contracts. Buyers of Binary Options pay for the contract at
the time of purchase. Binary Options are easy to trade but not easy
to win.
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