Binary options are no backwater of the options market, argues derivatives educator Rick Thachuk. Rather, they are a growth product for retail investors that is about to take off – like retail FX trading a decade ago.
Binary options may still be an obscure product, but that
does not mean they are abstruse or threatening. This simplified
version of options in fact has advantages that make it more
suitable for some users – perhaps especially for
beginning investors in options.
Until recently they were hard to obtain, but a new
generation of web-based electronic trading platforms, as well
as several market innovations designed to simplify the trading
decision, are generating excitement and activity in retail
binary options trading.
Heads or tails
A binary option, also called a digital or fixed return
option, has only two possible outcomes at expiry, each of which
pays out a fixed value, depending on whether or not a certain
condition has been fulfilled.
In most cases, the value of a binary option is based on the
price of an underlying security or asset. The condition is that
the price must reach or exceed a certain level for the option
to expire in the money and pay the higher value.
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