In simple terms, a Binary Option is one in which a trader takes a position, either up (Call Option) or down (Put Option) where the payoff is either a set price or nothing.  Also known as Digital Option, or All-or-nothing Option, the value of the payout is predetermined as is the term or expiry period. 

In order to trade Binary Options, you must first logon to your account.  This will automatically take you to the Trading home page.  Once there, you can access a range of choices by going to  the Trading tab on the tool bar at the top of the page.   Here, you will see a drop-down menu with the items:

    Pro Trader Platform

    Platform Rates
    Platform Features
    Platform Security
    Platform Asset Index
    Option Expired Rates

Each of these contains important information relative to trading at Banc De Binary.  To access a particular asset class, be it Stocks. Currencies, Commodities, or Indices, just click on Platform Asset Index where you will see a sub-menu that will provide information on all available options for trading, currently listed at bbinary.com.

When taking a position in a binary contract, you should have a sense of the direction of the price movement of the underlying asset or a sense of the chance of the event occurring. All binary contracts are driven by the value of the underlying asset moving up or down, or by the likelihood of the event occurring. For binaries based on underlying asset prices (like Gold, Silver, Crude Oil, etc), you can gain a sense of the direction of future price movements by reviewing the hourly, daily and weekly price chart of the underlying asset on the Banc De Binary website. You may also refer to numerous other information sources such as financial websites, which display price movements and predict future market trends.

If you believe that the price of the underlying asset is going to go up, to above a particular strike price, or the event is going to occur, you take a Long position on that contract, meaning you “Buy” the contract.

Alternatively, if you believe that the price of the underlying asset is going to go down, at or below a particular strike price, or the event is not going to occur, you may take a Short position on the contract, meaning you “Sell” the contract.

All binaries on Banc De Binary have at least a 70% payout. The price of the contract is equal to the probability of the event happening.

The Black–Scholes Model is a mathematical description of financial markets and derivative investment instruments. The model develops partial differential equations whose solution, the Black–Scholes formula, is widely used in the pricing of European-style  options.

Cash-Or-Nothing Call

This pays out one unit of cash if the spot is above the strike at maturity. Its value now is given by,

Cash-Or-Nothing Put

This pays out one unit of cash if the spot is below the strike at maturity. Its value now is given by,

Asset-Or-Nothing Call

This pays out one unit of asset if the spot is above the strike at maturity. Its value now is given by,

Asset-Or-Nothing Put

This pays out one unit of asset if the spot is below the strike at maturity. Its value now is given by,

Foreign Exchange

If we denote by S the FOR/DOM exchange rate (i.e. 1 unit of foreign currency is worth S units of domestic currency) we can observe that paying out 1 unit of the domestic currency if the spot at maturity is above or below the strike is exactly like a cash-or nothing call and put respectively. Similarly, paying out 1 unit of the foreign currency if the spot at maturity is above or below the strike is exactly like an asset-or nothing call and put respectively. Hence if we now take rFOR , the foreign interest rate, rDOM , the domestic interest rate, and the rest as above, we get the following results.

In case of a digital call (this is a call FOR/put DOM) paying out one unit of the domestic currency we get as present value,

In case of a digital put (this is a put FOR/call DOM) paying out one unit of the domestic currency we get as present value,

While in case of a digital call (this is a call FOR/put DOM) paying out one unit of the foreign currency we get as present value,

And in case of a digital put (this is a put FOR/call DOM) paying out one unit of the foreign currency we get as present value,

Skew

In the standard Black-Scholes model, one can interpret the premium of the binary option in the risk-neutral world as the expected value = probability of being in-the-money unit, discounted to the present value.

To take volatility skew into account, a more sophisticated analysis based on call spreads can be used. A binary call option is, at long expirations, similar to a tight call spread using two vanilla options. One can model the value of a binary cash-or-nothing option, C, at strike K, as an infinitesimally tight spread, where Cv is a vanilla European call. 

Thus, the value of a binary call is the negative of the derivative of the price of a vanilla call with respect to strike price:

When one takes volatility skew into account, σ is a function of K:

The first term is equal to the premium of the binary option ignoring skew:

is the Vega of the vanilla call; is sometimes called the "skew slope" or just "skew". Skew is typically negative, so the value of a binary call is higher when taking skew into account.

C = Cnoskew − Vegav * Skew