Will the price of gold be above $1,250 at 1:30 p.m. today?
If you believe it will be, you buy the binary option. If think gold will be below $1,250 at 1:30 p.m., then you sell this binary option.
The price of a binary option is always between $0 and $100, and just like other financial markets, there is a bid and ask price.
The above binary may be trading at $42.50 (bid) and $44.50 (offer) at 1 p.m. If you buy the binary option right then you will pay $44.50, if you decide to sell right then you’ll sell at $42.50.
Let’s assume you decide to buy at $44.50. If at 1:30 p.m. the the price of gold is above $1,250, your option expires and it becomes worth $100. You make a profit of $100 – $44.50 = $55.50 (less fees). This is called being “in the money.”
But if the price of gold is below $1,250 at 1:30 p.m., the option expires at $0. Therefore you lose the $44.50 invested. This called “out of the money.”
The bid and offer fluctuate until the option expires. You can close your position at any time before expiry to lock in a profit or a reduce a loss (compared to letting it expire OTM)