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Binary Option Example: US 500

This example looks at taking a position on where you think the US 500 Expiration Value will be at 4:15pm ET with a daily Binary Option.

It is 8am ET. The CME E-Mini® S&P 500 Index® future, from which Nadex calculates Expiration Values for its US 500 products, is trading at 1333.0.

Nadex lists 21 different daily US 500 Binary Options that expire at the end of the day’s trading. The binaries offer different strike prices staggered at 3-point intervals. On this particular day the strikes range from 1300.0 to 1360.0.

You decide to trade on the US 500 (Jun) 1330.0 (4:15pm) Binary Option. Below shows what happens to the trade.

Buy or Sell?

You Buy the Binary Option if you think the index future is going to finish the day above 1330. You Sell the Binary Option if you think the index future will finish the day at or below 1330. Below shows what happens for both trades.

You decide to Sell 1 contract at 58.50. Each contract is worth $1 per point to you.

The Ceiling level is 100.00, so the maximum possible adverse movement is 41.50 (100.00 – 58.50) or $41.50 per contract.

You have sold one contract so your maximum possible loss is 1 contract x 41.5 x $1 = $41.50. In this instance you must have $41.50 in your account, plus any trading fees, in order to open the position.

You decide to hold the position for the rest of the day, when it expires at 4:15pm.

The Expiration Value at 4.15pm ET (calculated from the E-mini S&P 500 index futures) is 1334.25, meaning the conditions of the Binary Option were met and it settled at 100.

Your loss is calculated as follows:

Opening price: 58.5
Closing price: 100

Difference: 41.5 points

Loss: 1 contract x 41.5 x $1 = $41.50

You decide to Buy 1 contract at 62.50.
 

The Floor level is 0, so the maximum possible adverse movement is 62.50 or $62.50 per contract.

You have bought 1 contract so your maximum possible loss is 1 contract x 62.50 x $1 = $62.50. You must have $62.50 in your account, plus any trading fees, in order to open this position.

You decide to hold the position for the rest of the day, when it expires at 4:15pm ET.

The Expiration Value at 4.15pm ET (calculated from the E-mini S&P 500 index futures) is 1334.25, meaning the conditions of the Binary Option were met and it settled at 100.

Your profit is calculated as follows:

Opening price: 62.50
Closing price: 100

Difference: 37.50 points

Profit: 1 contract x 37.50 points x $1 = $37.50


 The above hypothetical example provides details of what your gross profit or loss would have been. Of course, these could have been greater had you traded more contracts. In a real trade, you would also have to account for trade and/or settlement fees. For more information, please see our Fees page.

Binary Option Example: EUR/USD

This example looks at trading forex with a daily Binary Option. In this instance we’re looking at the level you expect spot EUR/USD to be at 3pm ET today.

It is 11am ET. Spot EUR/USD is trading at 1.3945.

You decide to trade on the EUR/USD > 1.3975 (3PM) Binary Option. Below shows what happens to the trade.

You Buy the Binary Option if you think the forex pair is going to rise from its current level to finish the day above 1.3975. You Sell the Binary Option if you think the forex pair will finish the day at or below 1.3975. Below shows what happens for both trades.
 
 

You decide to Sell 5 contracts at 20.50. Each contract is worth $1 per point to you.

The Ceiling level is 100.00, so the maximum possible adverse movement is 79.50 (100.00 - 20.50) or $79.50 per contract.

You have sold five contracts so your maximum possible loss is 5 contracts x 79.50 x $1 = $397.50. In this instance you must have $397.50 in your account, plus any trading fees, in order to open the position.

You monitor your position throughout the day and the euro rallies. Three hours later it looks increasingly likely the EUR/USD is going to finish the day above 1.3975, and the binary's market price has consequently risen to 69-72. You close the position early by clicking the market in the ‘Open Positions’ window and placing an order in the opposite direction – in this case, Buy. The option closes at a level of 72.

Your loss is calculated as follows:

Opening price: 20.50
Closing price: 72

Difference: 51.50 points

Loss: 5 contracts x 51.50 x $1 = $257.50

You decide to Buy 5 contracts at 24.00. Each contract is worth $1 per point to you.

The Floor level is 0, so the maximum possible adverse movement is 24 or $24 per contract.
 

You have bought 5 contracts so your maximum possible loss is 5 contracts x 24 x $1 = $120.
  You must have $120 in your account, plus any trading fees, in order to open this position.

You choose to hold the position until the end of the day, when it expires at 3pm ET.
 

The Expiration Value at 3pm ET (calculated from the Spot EUR/USD rate) is 1.3982, meaning the conditions of the Binary Option were met and it settled at 100.
 
 

Your profit is calculated as follows:

Opening price: 24.00
Closing price: 100

Difference: 76 points

Profit: 5 contracts x 76 x $1 = $380


 The above hypothetical example provides details of what your gross profit or loss would have been. Of course, these could have been greater had you traded more contracts. In a real trade, you would also have to account for trade and/or settlement fees. For more information, please see our Fees page.

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The maximum risk for any trade is fixed and required in advance so you cannot be called upon for further funds. But please remember these are volatile instruments and there is a high risk of losing your initial investment on each individual transaction.