What is a Binary Option?

Binary Options are becoming ever more popular with adverts for the product popping up all over the internet. Binary Options which once were considered exotic instruments have witnessed huge growth in the over the counter market in the last couple of years. A part of the reason is the simplicity of such a options contract as offered by the major market providers, with a fixed cost and fixed payoff if the contract is matured. 

A binary option is an option where the payoff is fixed at certain amount or there is no payout at all. So they can almost be seen as a kind of fixed odd bet. For example you could buy an binary option on Oil prices going up above $100 with it maturing at the end day, with a fixed pay off of say 60% (different providers price pay off differently, with some OTC providers providers using a percentage). So if the option you bought cost you $100 and Oil prices rose above $100 you would make $60 and get your original 100 dollars back. But if you lost and Oil Prices failed to rise above $100 before the maturity date of the contract you would lose the initial amount you paid to buy that option. That is pretty much how a standard binary option contract works. 

The simplicity of such a contract has led to many becoming very popular  OTC instrument. Numerous books have been provided to help those who are interested in trading binary options. There are various positives and negatives, to Binary Options which I hope to discuss at a later date. 


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