In binary trading you trade on whether or not a certain event will occur. There are only two possible outcomes - yes or no.

If the answer to the question posed by the binary trade is yes, the binary settles at 100. If the answer to the question posed by the binary trade is no, the binary settles at 0.

Types of Binary include:

• Ladder - a binary trade on whether the underlying market will finish above a stated level
• Target - a binary trade on whether a market will close in a certain range
• Hi-Lo - a binary trade on whether the day’s high or low will be a given distance from the previous day’s closing level
• OneTouch - a binary trade on whether the market will touch or go through the barrier level any time before the stated expiry
• Tunnel - a binary trade on whether the market will stay within two given barrier levels

As an example, imagine that at midday the UK 100 has already gained 35 points on yesterday’s closing price, and the UK 100 Up binary price stands at 70.2/73.4. If you expected the UK 100 to remain above yesterday’s close, you could buy a position of $10 per point at 73.4 - this would make your maximum loss $734 (as the answer to the trade was no, the price did not settle above yesterday’s closing price, the binary would settle at 0, 0 - 73.4 x $10 = -$734), and your maximum gain would be $266 (as the answer to your trade was yes, the binary would settle at 100, 100 - 73.4 x $10 = $266).

If, after a few hours, the UK 100 is fairly static and the UK 100 Up binary price rises to 90.0/93.8, you could choose to cash in your profit by selling $10 a point at 90.0 (90.0 - 73.4 x $10 = $166). If you choose to keep the position open until the close of trading and the UK 100 stays above yesterday’s close, you will get the entire $266.

A riskier trade would make more of a profit, if successful. For example, if the Australia 200 is down 24 points from yesterday’s close 20 minutes before the end of trading, many might not think it could finish in positive territory. You, however, think that the market will rally before the end of the session and decide to buy two contracts, worth $10 per point, now priced at 0/2. In this case, your maximum loss would be $40 (as the answer to your trade was no, the binary would settle at 0, 0 - 2 x 2 contracts x $10 = $40).

The index pushes up and just before the close of trading it tops yesterday’s close by 3 points, meaning you’ve made a profit of $1,960 (the answer to your trade was yes, the binary would settle at 100, 100 - 2 x 2 contracts x $10 = $1,960).

As you can see, one of the great advantages with binary trading is that you always know your maximum profit and loss beforehand, became the binary market cannot rise above 100 or fall below 0. This gives you the opportunity to make great profits while limiting your risk.

You can trade binaries across a variety of markets including global indices, spot forex and commodities with timeframes ranging from 5-minutes to daily, as well as exotic binaries that can expire throughout the day if a certain price is met.

Learn more about binaries today with the CFD provider that started it all. You will get free access to trading tools and the ability to trial the CFD trading platform through a free demo account.

Remember that CFDs and forex are leveraged products and can result in losses that exceed your initial deposit. CFD trading may not be suitable for everyone, so please ensure that you fully understand the risks involved.

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