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.

INVESTOPEDIA EXPLAINS '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 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 >>
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. Investing Basics

    Explaining Gamma

    Gamma is a measurement of how fast the delta of an option’s price changes after a 1-point movement in the underlying security.
  5. Economics

    Will the Selloff in China Hurt the Global Economy?

    Though China is the world’s second largest economy, its volatility in the stock market is unlikely to have an impact on the global or Chinese economy.
  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. Investing Basics

    How Does Delta Hedging Work?

    Delta hedging is a derivative trading strategy that attempts to reduce -- or eliminate -- the risk caused by price changes in the underlying asset.
  8. Options & Futures

    Tesla Stock Too Expensive? Trade Tesla Options

    Tesla Motors is trading around $260 a share, making it too expensive for many investors. Options offer a low-cost way to trade in Tesla.
  9. Options & Futures

    Stock Options To Trade On Intraday Momentum Index

    The intraday momentum index, or the IMI, can offer a reliable way to profit on options, but only for the right stocks.
  10. Options & Futures

    Intro to NYSE Binary Return Derivatives

    The New York Stock Exchange is entering into binary options trading. Here’s a quick introduction to how NYSE Binary Return Derivatives (ByRDs) work.

You May Also Like

Hot Definitions
  1. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  2. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  3. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  4. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  5. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
  6. Grandfathered Activities

    Nonbank activities, some of which would normally not be permissible for bank holding companies and foreign banks in the United ...
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!