How a Binary Option Works

A binary option may be as simple as whether the share price of ABC will be above $25 on April 22, 2021, at 10:45 a.m. The trader makes a decision, either yes (it will be higher) or no (it will be lower).

Let's say the trader thinks the price will be trading above $25 on that date and time and is willing to stake $100 on the trade. If ABC shares trade above $25 at that date and time, the trader receives a payout per the terms agreed. For example, if the payout was 70%, the binary broker credits the trader's account with $70.

If the price trades below $25 at that date and time, the trader was wrong and loses their $100 investment in the trade.