Binary Examples

It is half an hour before the close of trading and the underlying index is standing 15.5 points below the previous day's official settlement price. You think the market will rally before the close and end up on the day.

We quote a variety of Binaries with different targets for the net change of the daily settlement price of Wall Street. Our price for the market to finish between unchanged and up-20 points (0/+20) is 6.8 - 9.5.

You decide to buy 5 contracts at 9.5, the offer price. Each contract is worth US$10 per point. So you are risking 9.5 x 5 contracts x US$10 = US$475. You also know that, should the underlying index indeed finish up on the day, your position will be worth 100 x 5 contracts x US$10 = US$5000.

This represents a potential return of over 1000%, decided in the next thirty minutes.

Ten minutes later, Wall Street has rallied and is up 2.5 points on the day. Our quote for the 0/+20 Binary is now 53.2 - 56.2. You decide to take your profit rather than risk waiting for the settlement price. You close the position at our bid price of 53.2.

Profit = 43.7 x 5 contracts x US$10 = $2185

It is midday and the euro against the US dollar is standing 20 points below the previous day's settlement price (the price at 14.00 Chicago time). You think the market is not likely to recover by the time the Binary settles.

Our price for the euro/dollar to finish up is 38 - 41.5.

You decide to sell 10 contracts at 38, the bid price. Each contract is worth US$10 per point. The worst outcome for you would be for the euro/dollar to finish up and therefore for the Binary to expire at 100. So you are risking (100 - 38) x 10 contracts x US$10 = US$6200. Should the underlying market not finish up on the day, however, the Binary would expire at zero, meaning that you would make 38 x 10 contracts x US$10 = US$3800.

Several hours later, the exchange rate has recovered slightly but is still 10 points down on the day. Our quote for the E/$ Up Binary is now 11.8 - 15.3. You could take your profit here, but decide to hold on to the expiry.

At 14.00 Chicago time, the E/$ finishes just 4 points lower than the previous day's 14.00 price. It's close, but the E/$ has finished down and therefore the E/$ Up Binary expires at 0.

Profit = 38.0 x 10 contracts x $10 = $3800

Example: Buying

It is two hours before the RBA meets to set the target cash rate, and you observe that the market is factoring in a 40% chance of a 25bp rate rise. From this information, you believe the RBA will raise rates.

Our price for a 25bp (0.25%) increase in the RBA cash rate is 38 - 42.

You decide to buy 5 contracts at 42, the ask price. Each contract is worth A$10 per point, therefore you are risking 42 x 5 contracts x A$10 per point = A$2,100.

Two hours pass, the RBA meets and decides to increase the rates by 0.25%. Therefore your binary trade is settled at a 100, leaving you with the below profit:

Profit = 58.0 x 5 contracts x A$10 = A$2,900

Example: Selling

It is three weeks before the next RBA cash rate announcement and the market is factoring in a 50% chance of a rate rise. You think they will not raise rates.

Our price for a 0.25% increase in the RBA cash rate is 48 – 52.

You decide to sell 2 contracts at 48, the bid price. Each contract is worth $10 per point. The worst outcome for you would be if they do decide to raise rates, and therefore your trade will settle at 100. In this case, you are risking (100 - 48) x 2contracts x A$10 per point = A$1040. Should they not raise rates, your binary will expire at zero, meaning that you will make a profit of 42 x 2 x A$10 per point = $840.

Two weeks later (one week before the RBA meeting), AU inflation figures are released and have come out lower than expected. Subsequently there is less speculation about a rate rise and our quote for a 0.25% increase in the RBA cash rate is now 22 – 26. You can decide to take your profit here by buying back at the ask price of 26, thereby making the below amount:

Profit = 22.0 x 2 contracts x A$10 = A$440