Short answer
A binary option is a bet on whether a price will be above or below a level at a set time. If you are right, you get a fixed profit, usually 70–92% of your stake. If you are wrong, you lose the whole stake. Because wins pay less than losses cost, you must win more than half your trades to break even.
The idea in one trade
You open a trading platform and see EUR/USD at 1.0850. You think it will be higher in five minutes, so you buy a call (often labelled Higher or Up) for $10. The platform shows a payout of 85%.
Five minutes later one of two things happens:
| Price at expiry | Result | Your balance change |
|---|---|---|
| Above 1.0850 | Win | +$8.50 (you get $18.50 back) |
| Below 1.0850 | Loss | −$10.00 |
| Exactly 1.0850 | Tie | Usually $0, stake returned |
That is the whole product: a yes/no question about price, a fixed reward and a fixed risk. The size of the move does not matter. A rise of one pip pays the same as a rise of a hundred.
Why the maths works against you
Look at the table again. A win earns $8.50, a loss costs $10. If you win exactly half your trades, you lose money:
- 50 wins × $8.50 = $425
- 50 losses × $10 = $500
- Result: −$75 per 100 trades
To break even at an 85% payout you need to win 54.05% of trades. The formula is simple: break-even win rate = 1 ÷ (1 + payout). Try your own numbers in the break-even calculator.
This gap is how the broker earns money. It is also why most retail traders lose over time: holding a win rate above 54–56% on short expiries is hard.
The words you will see on the platform
- Asset — what you trade: a currency pair, gold, bitcoin, a stock.
- Expiry — when the trade closes, from 5 seconds to several hours.
- Strike price — the price your trade is measured against, usually the price when you open it.
- Payout — profit on a win as a share of your stake. It changes by asset and time of day.
- OTC — prices the broker creates when the real market is closed, for example at weekends. See OTC assets explained.
The full list is in our glossary.
Where binary options are allowed
Rules differ by country. Retail binary options are banned in the European Union, the UK and Australia, and in the US they are only offered on regulated exchanges. Most brokers that accept clients from India, Nigeria, Egypt or Latin America are licensed offshore, which means weaker protection if something goes wrong. Check your country page before you deposit.
How to start without losing money you need
- Open a demo account and trade one asset with one expiry for at least a week.
- Write down every trade: time, asset, direction, result.
- Compare your win rate with the break-even rate for the payout you get.
- Only if the numbers hold up, consider a small real deposit — and set a hard limit on how much you can lose.
Most people skip steps 2 and 3. They are the ones that tell you whether you have an edge or just a few lucky days.
FAQ
Are binary options gambling?
Mathematically they behave like a fixed-odds bet: a known payout against the full stake. Whether you can gain an edge depends on your method and discipline, and most retail traders do not.
How much money do I need to start?
Many brokers let you trade from $1 per position, and a demo account costs nothing. Start on the demo; deposit only money you can afford to lose.
What is the difference between binary options and forex?
In forex your profit or loss grows with the size of the price move. In a binary option it is fixed: the move only has to be in your direction by expiry.
How this page was made: drafted with AI assistance from public sources and our own test logs, then checked and edited by the ExpiryLab editorial team. The date above shows the last check. How we test · Editorial policy