Binary Options are a simple tool for investing in price fluctuations in various global markets.
Binary options are different from traditional options. Binary options have different payouts, fees and risks, and have a completely different liquidity and investment concept.
Binary options are extremely simple to use. The most common binary option is the "high-low" option. Allowing investment in stocks, indices, commodities and currencies, high-low binary options are also referred to as fixed return options. This is because the option has an expiry date/time and also what is called a strike price.
If a trader bets correctly on the direction of the market and the price at expiration follows the same direction set by the strike price, the trader is paid a fixed refund no matter how far the price has moved. The trader who bets on the wrong market direction loses his investment.
If the trader believes the market will go up, buy a call option. If the trader believes the market will go down, buy a put option. To make money on a call option, the price at expiration must be above the strike price. To win with put options, the price at expiry must be below the strike price.
The strike price, expiry, payout and risk are all parameters set before the position is opened.