A Binary Option is a type of option where the payoff is 0 or 1. Because of this characteristic, Binary Options can be easier to comprehend and trade than traditional options.
Binary Options are also called European-style option, which means that they can only be exercised on the expiration date. If, at expiration, the options stay in-the-money, the buyer or seller of the options receives a pre-specified dollar amount. In the same way if the options stays out-of-the-money, the buyer or seller of the options will get nothing. This provides a predictable upside (gain) or downside (loss) risk assessment. Not like traditional options, Binary Options provide complete payout due to a single pip movement.
In spite of the term “all or nothing”, depending on the actual trading platform, “nothing” can actually stand for “something”. This means that at expiration time the owner of the option may actually get a certain payout amount, even if the option expired “out of the money”.
At times you may encounter binary options under another name. In the Forex exchange market, Binary Options are also called digital options.
Binary Options Trading Guide 