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What is the difference between options and binary options?

I was reading a blog that kept talking about binary options trading instead of options. It said that binary options trading was a lot easier especially whne trading in the Forex Trading markets.

Public Comments

1. A binary option is betting on yes or no. For example if an index goes above 5000 or not. Right or wrong. Otherwise you are betting on the movement. So you would be winning if the index goes above 5000 (say 5001 might be win £10, 5002 win £20 etc.) and conversely losing if it goes below 5000 to the same degree.

2. I wouldn't consider binary options trading "easier" than trading spot Forex. It's basically higher risk / higher reward.

As the name implies, *binary* options is based on a true/false outcome at expiration. If your option expires "true", then you make a pretty decent return (some brokers offer as high as 81% return!). If it expires false, you lose your investment (although some brokers give you a small % of it back).

Also, unlike options, there really is no time decay with binary options, which is an advantage.

To learn more about binary options, do a Google search on "EZ Trader". They are a binary options broker that provides pretty good info on their website on how binary options work.

3. A regular option increases it's payoff the more the underlying passes the strike point.

A binary option pays off a fixed amount based on whether the strike point was passed or pays nothing if it wasn't.

4. First of all, trading is never easy. If regular options are difficult, then exotic options are even worse due to even more complex pricing mechanism and rules.

Binary options are either win or lose it all type of option with a fixed payout and a fixed loss. This means that if the underlying asset crosses beyond its strike price, you win a fixed profit while regular options would have given you increasingly higher profits as long as the underlying asset keeps going in that direction.

There are a lot of other pros and cons about Binary options and I would suggest you read the link below for detailed explanations.