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INSIDE BINARY is dedicated to take the mysteries out of binary options trading - We help those who are new to the world of binary options become successful traders, and we help seasoned traders to become expert traders.

At INSIDE BINARY we provide everything you need to trade with confidence - Learn about the basics of trading with our How-To articles, increase your level of expertise and profitable by learning proven binary options trading strategies and find the best and most trusted, regulated binary options brokers with our broker reviews.

So what are binary options?

Binary options are relatively new investing instruments that have become popular in recent years. As the term binary suggests, binary options are financial vehicles that can only result in 2 outcomes. With binary options, investors are making an all-or-nothing type of investment. Today, we'll discuss how binary options work in detail, go over an example trade, and talk about the probability of being profitable when trading binary options.

How do binary options work?

Before we talk about exactly how binary options work, it's important that you understand the language most brokers use. Here are a few terms that you would want to get familiar with...

Expiry Time - This is the date and time at which the binary option expires. If the option is not in the money by this point, it becomes a loss.

Strike Price - The strike price is a predetermined amount of money the asset is expected to reach before the expiry time. For the binary option to become profitable, the price of the underlying asset must reach or exceed the strike price.

Call - A call option is an option that traders purchase when they expect the value of an asset to rise. The easiest way to remember if call is up or down is to remember the term "Call them up".

Put - A put option is an option that traders purchase when they expect the value of an asset to decline. The easiest way to remember if put is up or down is to remember the term "Put that down".

In-The-Money - When the underlying asset reaches the strike price by the expiry time, the option expires in-the-money; meaning that the trade proved to be a profitable trade.

Out-Of-The-Money - When the underlying asset fails to reach the strike price, the binary option expires, out-of-the-money and is rendered useless.

As mentioned above, binary options are financial instruments with only 2 possible outcomes. Therefore, the investor would purchase the binary option from the broker (also known as trading platforms). At the time of purchase, the investor would choose the asset, the strike price, and the expiry time. Depending on these variables, the price and possible return associated with the option can vary wildly.

Binary Options Trade Example

You have been watching security A for some time and you strongly believe that the price of security A will continue to climb. Currently, security A trades for $100 per share, but you think it will jump to $105 per share by the end of the day. So, you purchase a call option for $75 with a possible profit of $65, a strike price of $105, and an expiry time at the end of the day. Now, let's say you were correct. The price of security A climbs to $106.25 per share. As a result, you collect your initial spend ($75) and your total net profit ($65), for a total of $140! On the other hand, if the option expires out of the money, you leave with $0.

Probability of Being Profitable

All experienced binary options traders know that you'll win some trades and lose others. However, to be profitable in the world of binary options, on average, you must be correct 54.5% of the time when you make your trades. It's this probability that has so many investors excited about the idea of trading binary options. With a bit of research, being correct 70% to 80% of the time isn't out of reach. In these cases, traders stand to make a large amount of profit in the process.