Binary trading is a type of CFD trading which offers a way to speculate on popular financial markets with limited-risk. There are only two possible outcomes: yes or no.

If you think the event will occur, you buy the binary; if you don’t think the event will occur, you sell the binary.

Binaries have a buy and sell price which will always be set between 0 and 100.

Your profit or loss is the difference between 100 or 0 (depending on whether you win (100) or lose (0))  and the level you bought or sold at.

Generally when entering a binary trade, if the price is closer to 100 the event is more likely to occur, while if the price is closer to 0 it’s less likely to occur.

## Binary Ladder example: Germany 30

Will the Germany 30 binary/Countdown settlement price finish at or above 10,000 at the end of the binary expiry?

​Let's assume that our current binary sell price is 72 and buy price is 76:

• If you think the event will occur, you would buy the binary at 76
• If you don't think the event will occur, you would sell the binary at 72

If, at expiry, the Germany 30 binary/Countdown settlement price finishes at or above 10,000, then the binary will settle at 100. Your profit or loss will be the difference between your entry price and 100.

If the size of your binary was 1 and you bought the binary at 76, your profit would equal: ​

• £24 = 1 x (100-76)
Binary profit = size x (current binary price - binary opening price)

• -£28 = 1 x (72 - 100)
Binary loss = size x (binary opening price - current binary price)

If, on the other hand, the Germany 30 binary/Countdown settlement price does not finish at or above 10,000, then the binary will settle at 0. In this case, if you had bought the binary you would have lost £76 and if you had sold you would have made a profit of £72.

## Binary Ladder (1 hour) example: EUR/USD

Let's say it's the first Friday of the month and you believe that EUR/USD will move higher after the US non-farm payrolls announcement at 1.30pm (UK time).​

At 1.15pm, our one-hour (1h) binary is priced at approximately 10.9 on the sell side and 18.0 on the buy side for a strike price of 1.139500 (which is just above recent highs).

You believe that by the binary expiry of 2pm, the price will finish at or above the strike. Based on this assumption, you select the buy price to bring up an order ticket.

A trade at this size has a maximum profit potential of £82.00:

• Profit/loss = (settlement price - purchase price) x size
• Potential maximum profit = (100 – 18.0) x 1

​The maximum risk (potential loss) is £18.00:

• Profit/loss = (settlement price - purchase price) x size
• Potential maximum loss = (0 – 18.0) x 1

Note: The amount (which in the example above is £18.00) of the binary order is immediately debited from your account once the order is placed.

### Closing your binary order early

Unfortunately the non-farm payrolls announcement was not as good as you expected.

You now decide that the price of EUR/USD is unlikely to be at or above 1.139500 by 2pm and decide to close out of the binary early (prior to the pre-close period).​

The binary price has dropped significantly, with the sell price now at 3.3 and buy price at 9.8.

• Profit/loss = (sell price - purchase price) x size
• Realised loss = (3.3 – 18.0) x 1 = -£14.70

If you had waited for the binary to expire, you would have lost £18.00

Account
When you close a binary position early, or it expires, an amount equal to your binary amount plus or minus any realised profit or loss is credited back into your account. In this case, £3.30 is credited back to your account upon closing the binary (this amount will be displayed in the confirmation ticket and within history):

• Amount due = amount (deducted from account on placing a binary) - realised loss.
• Amount due = £18.00 – £14.70 = £3.30

Note: if the binary settled at 100 (winning binary order) the amount returned would be £100:

• Amount due = amount + realised profit
• Amount due = £18.00 + £82.00 = £100.00

For further information, view our binary trading examples, find out more about the different types of binaries you can trade and see our binaries product details.

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