Binary options depend on the outcome of a "yes or no" proposition, hence the name "binary. At the time of expiry, the price of the underlying asset must be on the correct side of the strike price based on the trade taken for the trader to make a profit. A binary option automatically exercisesmeaning the gain or loss on the trade is automatically credited or debited to the trader's account when the option expires. That means the buyer of a binary option will either receive a payout or lose their entire investment in the trade--there is nothing in between.
Option Expiration Date Definition of Binary Options: Binary Options are like regular options in that they allow you to make a bet as to the future price of a stock. They are called binary options for this very reason.
The United States has been slow to accept binary option trading, but binary option trading has been quite popular in Europe for a few years, especially as they relate to FOREX.
The best way to understand these relatively new type of securities is to look at the example below. Currently, all binary options are traded as European style, which means they can only be exercised or settled at expiration.
In the U. If you want to trade them, there are not many popular brokers that call binary option added them to their platform. If you follow some of the ads on the web, the brokers that trade them are not commonly known so there is great risk. Another Example of Binary Options: Unlike traditional calls and puts, binary options do not have set prices.
The binary options trader decides the amount of money he wants to bet and invests that amount when he buys the binary option. The time of expiration for binary options is set at different time intervals throughout the day, such as expirations of 1 hour, 1 day, 1 month, etc.
The short duration of these contracts makes them more attractive to speculators and risk takers.