Binary options are a derivative that can be traded on any instrument or market.
They appeal because they are straightforward. You know precisely how much you could win, or lose before you make the trade.
No complex maths and calculator is required.
This is why they are also known as ‘all or nothing’ trades.
Binary options traded outside the U.S. are typically structured differently than binaries available on U.S. exchanges.
Binary options depend on the outcome of a "yes or no" proposition, hence the name "binary." Binary options have an expiry date and/or time.
A binary option automatically exercises, meaning the gain or loss on the trade is automatically credited or debited to the trader's account when the option expires.
A binary option may be as simple as whether the share price of ABC will be above $25 on April 22, 2019, at 10:45 a.m.
The trader makes a decision, either yes (it will be higher) or no (it will be lower).
Let’s say the trader thinks the price will be trading above $25, on that date and time, and is willing to bet $100 on it.
If ABC shares trade above $25 at that date and time, the trader receives a payout per the terms agreed.
For example, if the payout was 70%, the binary broker credits the trader's account with $70.
If the price trades below $25 at that date and time, the trader was wrong and loses their $100 investment in the trade.