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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?
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What is the Best Binary Options Broker? Binary options trading hinges on a simple question — will the underlying asset be above or below a certain price at a specified time?
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Let us take them one after the other. Expiry times can be as low as 5 minutes. How does it work? First, the trader sets two price targets to form a price range.
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Your view will need to pan out within the lifetime of the binary optionor it may expire worthless. Other variants of the binary option are one-touch and double-touch binary options. These options either payout or cease to exist as soon as the market touches either 1 or 2 preestablished trigger points respectively. Since binaries are derivative financial instruments typically used for short-term speculation rather than for long-term asset appreciation, they tend to suit traders more than investors.