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The Bottom Line Binary options are financial options that come with one of two payoff options: a fixed amount or nothing at all. That's why they're called binary options—because there is no other settlement possible. The premise behind a binary option is a simple yes or no proposition: Will an underlying asset be above a certain price at a certain time? Traders place trades based on whether they believe the answer is yes or no, making it one of the simplest financial assets to trade.

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One of the unique characteristics of trading binary options is that you know your risk reward before entering the trade; this way you know exactly what you stand to win or lose. Binary options allow you to express your view on an underlying commodity, currency or share by the act of trading.

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Share InvestManiacs Binary Trading For Dummies There is no doubt that trading in binary options offers the potential to generate a considerable return on your investment even for dummies. However, it also presents an opportunity for the uninformed and inexperienced to simply lose money.

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Option buyers are charged an amount called a "premium" by the sellers for such a right. In contrast, option sellers option writers assume greater risk than the option buyers, which is why they demand this premium. Options are divided into "call" and "put" options.