Binary Options are financial derivatives which are derived from the traditional options. They belong to the group of so-called exotic options. This is due to the fact that in addition to the many similarities with the classic version is a crucial difference. With binary options shall be underlying, strike price (exercise price) and run time in advance.

Traditional options offer, depending on the performance of the underlying a variety of possible payout amounts. The binary option /hence the name/ provide exactly two. When trading binary options, also known as digital options, have to estimate the market participants, the performance of the Underlying. He puts on a rising or a falling exchange rate? Goes from the buyer of a price increase, he buys a call option. He anticipates a decline, he buys a put option. If he guessed correctly, he gets a profit.

Binary Options: “Up / Down Options”

If the prognosis is correct, he will receive a prize. If it is wrong, he loses his bet. In this model, the binary options, one can distinguish between:

Cash-or-nothing: As with standard options and the underlying asset (e.g. a share), the strike price (exercise price) and run time is set. Moreover, a fixed payment amount is determined. If the price of the underlying at maturity is above the strike price, the investor receives the fixed payment amount. If the price is lower, he loses the premium paid.

Asset-or-nothing: The functioning of the cash-or-nothing option is very similar. Only the repayment amount is not fixed, but is the price of the underlying asset, if it is at maturity on the strike price. Otherwise, he loses the premium here.

Binary Options: “Touch Options”

The participant predicts that the price before the end of the expiry date reached a certain level or it is not achieved.

“One-Touch”: the price of the underlying reaches the outright level. The option will terminate immediately and the investor will receive the previously agreed payment. If the level is not reached during the term, it is no payment.
“Double-on-touch” and “Double-no-touch”: The market participant is not on one but on two levels. The payment will be made with proper prognosis of the underlying course.


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