The possible outcomes for binary options trading are simple: getting the payout or not getting it. Binary options trading is one of the easiest types of trading for this reason. A trader’s prediction of the direction of change in value is often called either ‘Put’ or ‘Call’. Put is the prediction that the stock will decline in value from its price at the beginning of the contract, while Call is a prediction that the price will increase. The trader will be paid in full if they correctly predicted the direction of change, and paid nothing if their prediction is incorrect. For this reason, binary options are often called ‘all or nothing options’.
For example, if a trader purchases a Put option on a given asset and the asset has declined in value at expiration, they will receive the full payout. If they purchase a Put option on a different asset and the asset has increased in value at expiration, they will receive no payout and be out the cost of purchasing that contract.
There are two different subtypes of binary options. These types will determine how much a trader is paid if they correctly predict the movement of the stock. If the trader has purchased a cash-or-nothing option, they will be paid a fixed amount of money. If they have instead purchased an asset-or-nothing option, they will be paid the value of the underlying asset. Cash-or-nothing options are the most common. Traders should assume they are purchasing cash-or-nothing options unless told otherwise.
