binary option and forex trading
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For example, a purchase is made of a binary cash-or-nothing call option on
XYZ Corp's stock struck at $100 with a binary payoff of $1,000. Then, if at
the future maturity date <https://en.wikipedia.org/wiki/Maturity_date>,
often referred to as an expiry date, the stock is trading above $100,
$1,000 is received. If the stock is trading below $100, no money is
received. Under some contracts if the stock is trading at exactly $100, the
money is returned to the purchaser..........................
Example of a binary options trade
A trader who thinks that the EUR/USD price will close at or above 1.2500 at
3:00 p.m. can buy a call option <https://en.wikipedia.org/wiki/Call_option> on
that outcome. A trader who thinks that the EUR/USD price will close at or
below 1.2500 at 3:00 p.m. can buy a put option
<https://en.wikipedia.org/wiki/Put_option> or sell a call option contract.
At 2:00 p.m. the EUR/USD price is 1.2490. The trader believes this will
increase, so he buys 10 call options for EUR/USD at or above 1.2500 at
3:00 p.m. at a cost of $40 each.
The risk involved in this trade is known. The trader’s gross profit/loss
follows the "all or nothing" principle. He can lose all the money he
invested, which in this case is $40 x 10 = $400, or receive $100 x 10 =
$1,000. If the EUR/USD price will close at or above 1.2500 at 3:00 p.m. the
trader's profit will be the payoff at expiry minus the cost of the option:
$1,000 – $400 = $600.
The trader can also choose to liquidate (buy or sell in order to close) his
position prior to expiration, at which point the option value is not
guaranteed to be $100. The larger the gap between the spot price and the
strike price, the value of the option decreases, as the option is less
likely to expire in the money <https://en.wikipedia.org/wiki/In_the_money>.
In this example, at 3:00 p.m. the spot has risen to 1.2505. The option has
expired in the money and the gross payoff is $1,000. The trader's net
profit is $600you can also contact me at firstname.lastname@example.org for more info
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