Binary options are instruments used in trading. These are high risk tools that are primarily used to make predictions on the prices of a particular asset at a certain period of time. Most of the time, these predictions are made for assets that have minute modifications in price, hence it is quite difficult to predict as it is very hard to accurately judge and predict these small changes. Digital Options, All-or-Nothing Options and FROs or Fixed Return Options are some other names for Binary Options.
In financial terms, a binary option is a tool where the reward is a fixed amount of a pre-determined asset or nothing at all. There are four different types of binary options which can be bought on four types of assets:
1) Commodities Binary Options are products or goods that can easily be exchanged for another product (interchangeability). Any platform would recognize products such as gold, silver, copper and even oil as commodities.
2) Forex Binary Options are formed by two types of currencies (e.g. USD / EUR). Here, the 'base currency' is USD and EUR is dubbed the 'quote currency'. Mostly used in international trade, the value of the quote currency depends on how high the base currency is. It allows two parties trading with each other to use the currencies of their own countries for trading purposes.
3) Index Binary Options include a set of stocks that are known as an 'index'. Trading in this allows a trader or investor to be exposed to a larger sector of the market. This is very risky as external factors can affect the profit you receive from the sales. However, this is also a very reliable and stable method as the index is affected by the financial performance of more than one party (e.g. Company).
4) Stock Binary Options are a tricky area. It is representative of the worth and performance of a company and displays and conveys this information through shares. It is not mandatory for investors and traders to purchase shares but can still reap the benefits of the company's worth. This method is also available in a large number of countries in the world.