Binary Options are a way to make money by predicting if a stock or commodity or currency will go up or down.
It works like this.
Let’s say I think oil will go up in price. I would buy a call option, (this means I think the price is going higher) and I will decide how much I want to wager. I can put down $50 on the call option, and if oil goes up then I will get around $85, my initial $50 plus my profit of $35. If I am wrong and oil goes down in price, then I lose my $50.
How fast does it happen? That depends on how long you want, you can say 60 seconds, or you can say by the end of the day.
Why would I use a binary options instead of buying the stock itself? Because here I can make over 70% return in 60 seconds and when was the last time you saw a stock go up 70% in one minute!
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Unlike stock options where the price of the option fluctuates and an option can go from $0.10 to $10.00, with a Binary Options the highest it will go is determined before the trade is placed.
The two main types of binary options are the “cash or nothing” binary option and the “asset or nothing” binary option. The cash or nothing binary option pays a fixed amount if the option expires in the money, the asset or nothing pays the value of the underlying security.
Thus, the options are binary in nature because there are only two possible outcomes. They are also called; all or nothing options, digital options (common in Forex), and Fixed Return Options.
See the binary option trading example here.
Binary Options trade on platforms or exchanges. Some brokers are regulated and others are not. Learn about binary broker regulations here.