In finance, a binary option is a type of option where the payoff is either some fixed amount of some asset or nothing at all. The two main types of binary options are the cash-or-nothing binary option and the asset-or-nothing binary option. 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. Thus, the options are binary in nature because there are only two possible outcomes. 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). Binary options are usually European-style options.
When buying a binary option the potential return it offers is certain and known before the purchase is made. Binary options can be bought on virtually any financial product and can be bought in both directions of trade either by buying a “Call”/“Up” option or a “Put”/“Down” option. This means that an investor can go long or short on any financial product simply by buying a binary option. Binary options are offered against a fixed expiry time which may be e.g. 60 seconds and up to 30 minutes, an hour ahead or to the close of the trading day.
For example, a purchase is made of a binary cash-or-nothing call option on some stock struck at $100 with a binary payoff of $1000. Then, if at the future maturity date, the stock is trading at or above $100, $1000 is received. If its stock is trading below $100, nothing is received.
You can invest almost any amount, although this will vary from broker to broker. Often there is a minimum such as $10 and a maximum such as $10,000 (check with the broker for specific investment amounts).
Other Types of Binary Options
The example above is for a typical high-low binary option – the most common type of binary option – outside the U.S. International brokers will typically offer several other types of binaries as well. These include “one touch” binary options, where the price only needs to touch a specified target level once before expiry for the trader to make money. There is a target above and below the current price, so traders can pick which target they believe will be hit before expiry.
A “range” binary option allows traders to select a price range the asset will trade within until expiry. If the price stays within the range selected, a payout is received. If the price moves out of the specified range, then the investment is lost.
You have to be very careful if you choose to trade.
These platforms may be considered by some as gaming platforms rather than investment platforms because of their negative cumulative payout (they have an edge over the investor) and because they require little or no knowledge of the stock market to trade.
And this sort of thing can quickly become addictive. And no one, no matter how knowledgeable, can consistently predict what a stock or commodity will do within a short time frame.
Here are links to some platforms you can check out. You could find many more if you search online:
All Countries/Regions Eztrader.com
For Canada only. Superoptions.com
For Canada, Australia, New Zealand Opteck.com
For Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates NetoTrade