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.