What are Binary Options?
A Binary Option is a financial option in which the payoff is either some fixed monetary amount or nothing at all. The two main types of Binary Options are the cash-or-nothing Binary Option and the asset-or-nothing Binary Options. The cash-or-nothing Binary Option pays some fixed amount of cash if the option expires in-the-money while the asset-or-nothing pays the value of the underlying security. They are also called all-or-nothing options, digital options (more common in Forex/Interest Rate Markets), and fixed return options (FROs) (on the American Stock Exchange).
How Binary Options work?
Binary Options “are based on a simple ‘YES’ or ‘NO’ proposition: Will an underlying asset be above a certain price at a certain time?” Trades place wagers as to whether that will or will not happen. If a customer believes the price of a commodity or currency will be above a certain price at a set time, he buys the Binary Option. If he believes it will be below that price, he sells the option. The price of a binary is always under $100.