A short and precise series for understanding Binary Options in US (2/10) A Zero-Sum Game (Follow my website newsfeeds for knowing the best strategy and broker http://feeds.feedburner.com/BOBrokerReviews ) Eventually, every option settles at $100 or $0. $100 if the binary option proposition is true and $0 if it turns out to be false. Thus, each binary option has a total value potential of $100, and it is a zero-sum game, what you make, someone else loses, and what you lose, someone else makes. Each trader must put up the capital for their side of the trade. In the examples above, you purchased an option at $44.50, and someone sold you that option. Your maximum risk is $44.50 if the option settles at $0, and so the trade costs you $44.50. The person who sold to you has a maximum risk of $55.50 if the option settles at $100—$100 – $44.50 = $55.50. A trader may purchase multiple contracts if desired. Here’s another example: NASDAQ US Tech 100 index > $3,784 (11 a.m.). The current bid and offer are $74.00 and $80.00, respectively. If you think the index will be above $3,784 at 11 a.m., you buy the binary option at $80, or place a bid at a lower price and hope someone sells to you at that price. If you think the index will be below $3,784 at that time, you sell at $74.00, or place an offer above that price and hope someone buys it from you. You decide to sell at $74.00, believing the index is going to fall below $3,784 (called the strike price) by 11 a.m. And if you really like the trade, you can sell (or buy) multiple contracts. The figure in this post shows a trade to sell five contracts (size) at $74.00. The Nadex platform automatically calculates your maximum loss and gain when you create an order, called a ticket. The maximum profit on this ticket is $370 ($74 x 5 = $370), and the maximum loss is $130 ($100 – $74 = $26 x 5 = $130) based on five contracts and a sell price of $74.00. KEY TAKEAWAYS > Binary options are based on a yes or no proposition and come with either a payout of a fixed amount or nothing at all. > These options come with the possibility of capped risk or capped potential and are traded on the Nadex. > Bid and ask prices are set by traders themselves as they assess whether the probability set forth is true or not. > Each Nadex contract traded costs $0.90 to enter and $0.90 to exit, and fees are capped at $9. #NMBO404

A short and precise series for understanding Binary Options in US (2/10)

A Zero-Sum Game

(Follow my website newsfeeds for knowing the best strategy and broker http://feeds.feedburner.com/BOBrokerReviews )

Eventually, every option settles at $100 or $0. $100 if the binary option proposition is true and $0 if it turns out to be false. Thus, each binary option has a total value potential of $100, and it is a zero-sum game, what you make, someone else loses, and what you lose, someone else makes.

Each trader must put up the capital for their side of the trade. In the examples above, you purchased an option at $44.50, and someone sold you that option. Your maximum risk is $44.50 if the option settles at $0, and so the trade costs you $44.50. The person who sold to you has a maximum risk of $55.50 if the option settles at $100—$100 – $44.50 = $55.50.

A trader may purchase multiple contracts if desired. Here’s another example:

NASDAQ US Tech 100 index > $3,784 (11 a.m.).
The current bid and offer are $74.00 and $80.00, respectively. If you think the index will be above $3,784 at 11 a.m., you buy the binary option at $80, or place a bid at a lower price and hope someone sells to you at that price. If you think the index will be below $3,784 at that time, you sell at $74.00, or place an offer above that price and hope someone buys it from you.

You decide to sell at $74.00, believing the index is going to fall below $3,784 (called the strike price) by 11 a.m. And if you really like the trade, you can sell (or buy) multiple contracts.

The figure in this post shows a trade to sell five contracts (size) at $74.00. The Nadex platform automatically calculates your maximum loss and gain when you create an order, called a ticket.

The maximum profit on this ticket is $370 ($74 x 5 = $370), and the maximum loss is $130 ($100 – $74 = $26 x 5 = $130) based on five contracts and a sell price of $74.00.

KEY TAKEAWAYS

> Binary options are based on a yes or no proposition and come with either a payout of a fixed amount or nothing at all.

> These options come with the possibility of capped risk or capped potential and are traded on the Nadex.

> Bid and ask prices are set by traders themselves as they assess whether the probability set forth is true or not.

> Each Nadex contract traded costs $0.90 to enter and $0.90 to exit, and fees are capped at $9.

#NMBO404

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