What Are Binary Options?

What are the binary options?

Binary options are a new type of investment or financial instrument. You acquire an option to speculate (guess) in which direction an asset will move.

Binary options are also known as all or nothing options, digital options, fixed return options each of those names represents the 0-1 binary options. This is because there are only 2 possible outcomes in one option. Go UP or DOWN, CALL or PUT.

A simplified example of operation of binary options is something like this:

An investor acquires an Apple binary option for $ 10, with the opinion that at the end of the day (or selected period) the shares of Apple will have risen relative to the actual price. If he is right then he gets a return of his investment + fixed profit. Investor knows his profit before he starts the position.
Lets assume that in this example the fixed profit is 81%.

Possible results:
In the money If at the end of the day, shares of Apple are higher than in the time it was acquired, the investor receives $18.10.
Out of the money The shares have a lower price, then he loses the portion invested. Some brokers offer a partial recovery of the investment, for example 15%, $ 1.50.
At the money if the price of shares remains the same, the investor gets back his $ 10 the trade is closed without profit or loss.

Sound simple? Well, it is but trading binary options is far more than just guessing!

See also: Binary options types