A binary option is when a buyer enters into a contract to purchase an underlying asset at a fixed price at a pre-determined time in the future.
Different from buying stocks and shares outright, with a binary option you are purchasing the right but not the obligation to buy shares of a stock and with its “All or Nothing” outcome the buyer is always aware of their losses from the start.
The potential loss or gain is determined by the amount invested by the owner and there are only ever 2 possible outcomes. If the option expires in-the-money the owner receives a 65-71% payout or if the option expires out-of-the-money the owner generally receives nothing, although there are a select few binary option platforms which offer a 15% return on all out-of-the-money results.
For example, if a buyer were to purchase a $100 option of XYZ Ltd with a 70% return rate promised of that chosen stock, an in-the-money result at the time of expiration would promise a $170 payout ($70 earnings plus the original premium of $100). If the result was an out-of-the-money finish the buyer would not lose more than their original premium of $100 and in some cases cold walk away with $15 (15% out-of-the-money payout).