Exchange-Traded Binary Options

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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. 

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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 >>

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