Exchange-Traded Binary Options

AAA

DEFINITION of 'Exchange-Traded Binary Options'

Exchange-traded binary options, regulated by the CFTC, let you speculate on the price of some of the most heavily traded forex, commodities and stock indices markets with short-term hourly, daily or weekly expirations.  The all-or-nothing trade (hence the term binary) is a derivative, meaning you don’t actually buy or sell the asset itself.  Binary options have a fixed payout, so you know your potential profit—or loss—ahead of time.   Exchange-traded binary options have transparent pricing and no counter-party risk, unlike those traded over-the-counter.

BREAKING DOWN 'Exchange-Traded Binary Options'

Binary options trading is simply making a true or false prediction about the direction of a market and main benefits include short-term expirations, straight-forward risk/reward profiles, defined risk and low collateral required to trade. Binary option contracts always settle between 0 and 100 at expiration but traders can liquidate the contract at any point before expiration limiting losses or locking in gains. 

RELATED TERMS
  1. Binary Option

    A type of option in which the payoff is structured to be either ...
  2. Spot Premium

    The money an investor pays to a broker in order to purchase a ...
  3. Asset-or-Nothing Put Option

    An option payoff that is equal to the asset's price if the asset ...
  4. Cash-Or-Nothing Call

    An exotic option whose payoff is a predetermined amount (sometimes ...
  5. Asset-Or-Nothing Call Option

    A derivative security for which there is no payoff unless the ...
  6. Cash-or-Nothing Put

    An exotic option whose payoff is a specified fixed price (sometimes ...
Related Articles
  1. Options & Futures

    What You Need To Know About Binary Options Outside The U.S.

    Binary or digital options are a simple way to trade price fluctuations in multiple global markets.
  2. Options & Futures

    Introduction to SPOT Options

    Single-payment options trading (SPOT) allows investors to have full control over their investments.
  3. Options & Futures

    Exotic Options: A Getaway From Ordinary Trading

    Exotic options are like regular options, except that they have unique features that make them complex. These unusual investment vehicles can reignite your interest in trading.
  4. Home & Auto

    When Getting a Rent-to-Own Car Makes Sense

    If your credit is bad, rent-to-own may be a better way to purchase a car than taking out a subprime loan – or it may not be. Get out your calculator.
  5. Options & Futures

    An Introduction To Value at Risk (VAR)

    Volatility is not the only way to measure risk. Learn about the "new science of risk management".
  6. Investing

    Looking To Begin Trading In The Stock Market?

    If you are a new trader, we explain the differences between penny stocks and options so you can make the best decision for your personal trade plan.
  7. Options & Futures

    How to Trade Options on Government Bonds

    A look at trading options on debt instruments, like U.S. Treasury bonds and other government securities.
  8. Investing Basics

    How Does a Collar Work?

    Collar refers to a protective options strategy that investors use after a stock has experienced substantial gains.
  9. Options & Futures

    Long on Oil? Hedge Falling Oil Prices with Options

    With no end to the oil slump in sight, here are some risk management strategies using options to protect your oil positions.
  10. Investing Basics

    Explaining Interest Rate Parity

    Interest rate parity exists when the expected nominal rates are the same for both domestic and foreign assets.
RELATED FAQS
  1. How does a forward contract differ from a call option?

    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>
  2. What are the main risks associated with trading derivatives?

    The primary risks associated with trading derivatives are market, counterparty, liquidity and interconnection risks. Derivatives ... Read Full Answer >>
  3. How can an investor profit from a fall in the utilities sector?

    The utilities sector exhibits a high degree of stability compared to the broader market. This makes it best-suited for buy-and-hold ... Read Full Answer >>
  4. What is the difference between derivatives and options?

    Options are one category of derivatives. Other types of derivatives include futures contracts, swaps and forward contracts. ... Read Full Answer >>
  5. How are rights distributed in a rights offering?

    In a rights offering, rights are distributed to shareholders based on the number of shares they already own. What Is a Rights ... Read Full Answer >>
  6. What risks should I consider taking a short put position?

    The risks to consider before taking a short put position are the odds of sustained weakness in the asset price and a spike ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Alligator Spread

    An unprofitable spread that occurs as a result of large commissions charged on the transaction, regardless of favorable market ...
  2. Tiger Cub Economies

    The four Southeast Asian economies of Indonesia, Malaysia, the Philippines and Thailand. Tiger cub economy indicates that ...
  3. Gorilla

    A company that dominates an industry without having a complete monopoly. A gorilla firm has large control of the pricing ...
  4. Elephants

    Slang for large institutions that have the funds to make high volumes trades. Due to the large volumes of stock that elephants ...
  5. Widow's Exemption

    In general terms, a widow's exemption refers to the amount that can be deducted from taxable income by a widow, thereby reducing ...
  6. Wedding Warrant

    A warrant that can only be exercised if the host asset, typically a bond or preferred stock, is surrendered. Until the call ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!