Counting On 1 Magic Price In Binary Trading

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Whether you are trading Intraday, 20-Minute or 5-Minute Nadex Binary Contracts, there is one price you can always count on: $50. Before this “magic” price level is explained, let’s go over a few basics about binary contracts.

When trading binaries, there are two possible payoffs at expiration: $100 or $0.

Yes, you can exit at any time and receive a different amount, but if the contract is held until expiration, those are the only two amounts possible at that time. At settlement, the $100 will only be paid if the condition described in the contract name is true. Otherwise, the binary will settle at $0.

If you bought a USD/JPY>119.60 contract, in order for it to be true, the market must be higher than 119.60, so the price needs to be 119.601 or higher at expiration.

So, how is the price of $50 arrived at, and what makes it “magic”?

The “magic,” per se, is in the $50 price telling you the market is trading at or very near that strike price. Why?

Because it is At The Money (ATM), meaning you have an idea of where the 50/50 percent possibility area is located. This is to say that at that point, you have a 50 percent chance of having the market go up or down, finishing above or below that strike price.

It is important to note that the price is rarely at $50 exactly, but it is close enough that you can tell by looking at the binary price ladder or the Apex Binary Scanner where the market is trading.

As shown in the images below, you can see examples of the market trading at or near the $50 or 50 percent level.

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After watching either the price ladder or the scanner for a few moments, you can tell which direction the market is moving at that time. However, this does not give you enough information alone on which to base your trade.

The market can make drastic moves in only a few seconds, so it’s important to be clued into the nuances that are reflected in the movements shown on the charts. Be sure that you have a strategy and a reason for any trade you place.

Knowing where the mid-range price and the ATM strike price points are can help you determine where you want to place your trade. If you know where that magic $50 ATM strike is, and you know the way the market is trending, you are better able to make an educated decision on whether to buy or sell a certain contract.

Maybe the market isn’t trending, so you want to place a binary butterfly trade. By knowing where the one price you can always count on is located, it can help you base where to place the legs of your butterfly trade.

If you need more information on what a binary butterfly trade is and how to use this strategy, see Trading Iron Butterflies on Nadex Binaries.

Gary Beal