A binary option is a sort of option which guarantees a fixed return amount in the event of a successful trade.
Unlike traditional Forex trading where profits and losses are progressive depending on the precision of one’s prediction down to the last decimal point of an underlying asset’s rate, binary options trading has a fixed payoff which is solely based on a yes or no decision, hence the ‘binary’ in binary option.
When trading binary options, one will be faced with two decisions: to place either a Call or a Put option. When placing a Call option, the trader will gain profit if the expiry price is above the strike price, whereas a Put option will mean that profit will only be made if the expiry price is lower than the strike price.
A binary option trade is as straightforward as the following scenario:
A trader places a 60-second Call option on an asset, speculating that the expiry price will be higher than the strike price, by the end of the 60-second time frame. If the trader’s prediction is correct, he/she will win the predetermined amount. If, however, the prediction is incorrect, the investment amount will be lost.