Currency Binary

DEFINITION of 'Currency Binary'

A currency trade that offers an all-or-nothing payoff based on a given currency exchange rate when the position reaches its expiration date. Binaries have a single payoff amount rather than the variable profit amounts found in traditional options.

Binary trades can be used for either hedging purposes (such as downside protection for assets held in a specific currency) or as a speculative bet on the direction a specific exchange rate will move. The going premium on a currency binary represents the consensus "odds" that the strike exchange rate will be reached by expiration. An investor or trader can also sell (short) a currency binary position, reversing the payoff options and effectively betting that the exchange rate will fall.

BREAKING DOWN 'Currency Binary'

Currency binaries represent a rather young trading strategy, and not all currency exchange rates are currently being traded. The majority of positions are for the EUR/USD, GBP/USD and USD/YEN based on their very liquid forex markets.

For example, assume that the exchange rate for the EUR/USD is currently 1.25; an investor who buys a currency binary at a strike exchange rate of 1.30 is betting that the exchange rate will be 1.30 or greater on the expiration date. If this occurs, the investor will receive a set payoff amount, no matter how far above 1.30 the exchange rate settles. If the exchange rate at expiration is less than 1.30, the long investor receives nothing.

RELATED TERMS
  1. Exchange-Traded Binary Options

    Exchange-traded binary options, regulated by the CFTC, let you ...
  2. Binary Option

    A type of option in which the payoff is structured to be either ...
  3. Nadex

    Nadex stands for the North American Derivatives Exchange, a regulated ...
  4. Currency Exchange

    A business that allows customers to exchange one currency for ...
  5. International Currency Exchange ...

    The rate at which two currencies in the market can be exchanged. ...
  6. Cash-or-Nothing Put

    An exotic option whose payoff is a specified fixed price (sometimes ...
Related Articles
  1. Trading

    Common Misconceptions About Binary Options - Sponsored by Nadex

    There are many misconceptions about binary options, so it is really important that traders understand exactly what they are--and what they are not--in order to use them effectively.
  2. Trading

    Trading Volatility - Sponsored by Nadex

    The perceived volatility of the underlying market also affects the binary pricing. Sticking with our previous example, the EUR/USD 138 binary has about 1 ½ hours until expiration and the ...
  3. Trading

    Introduction To Binary Options - Sponsored by Nadex

    Binary options may sound complicated, but they're really not. In fact, they offer traders alternative ways to trade stock indices, commodities and currencies-even economic events. Say you think ...
  4. Trading

    Binary Options FAQs - Sponsored by Nadex

    Many investors may not be familiar with binary options, but they’re actually quite easy to use. And they can play an important role in your investing strategy. Here are some of the more common ...
  5. Trading

    A Guide To Trading Binary Options In The U.S.

    What binary options are, how they work and where you can legally trade them in the U.S.?
  6. Managing Wealth

    Binary Options For Capital-Protected Investments

    Binary options may sound complex, but they can be used to create capital-protected investments. Here's how.
  7. Markets

    Applying Binary Options To Equity Markets

    A binary option payout depends on the outcome of a “yes” or “no” proposition, related to the difference between underlying asset price and strike price.
  8. Trading

    How To Hedge Call Options Using Binary Options

    Here is a step-by-step walk through how to hedge a long call position with binary options.
  9. Trading

    Trading Forex With Binary Options

    Binary options are an alternative way, with a major advantage, for traders to play the forex market.
  10. Trading

    Arbitrage Strategies With Binary Options

    Looking for arbitrage opportunities in Binary Options? Here are the ways to encash on those, with the opportunities, risks and limitations.
RELATED FAQS
  1. What is the history of binary options?

    Discover the history of binary options trading, which is now one of the fastest growing investment market vehicles available ... Read Answer >>
  2. What types of companies benefit from reporting results utilizing constant currencies ...

    Understand constant currency figures, and explore some of the reasons why a company is likely to benefit from reporting using ... Read Answer >>
  3. How can I use Bollinger Bands® to trade binary options?

    Learn how to use Bollinger Bands to trade binary options. Bollinger Bands are derived from price and signal overbought and ... Read Answer >>
  4. Why do forex traders use a currency converter?

    All currencies are quoted in pairs - one country's currency against another country's currency. A currency converter is used ... Read Answer >>
  5. How can I invest in a foreign exchange market?

    The foreign exchange market, also called the currency market or forex (FX), is the world's largest financial market, accounting ... Read Answer >>
  6. How do you make money trading money?

    Investors can trade almost any currency in the world. Investors, as individuals, countries, and corporations, may trade in ... Read Answer >>
Hot Definitions
  1. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  2. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  3. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  4. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
  5. Russell 3000 Index

    A market capitalization weighted equity index maintained by the Russell Investment Group that seeks to be a benchmark of ...
  6. Enterprise Value (EV)

    A measure of a company's value, often used as an alternative to straightforward market capitalization. Enterprise value is ...
Trading Center