Binary means two values. In finance a Binary Option (contract) is an option where the buyer/owner will pay a fixed amount for an underlying service or asset. The payoff is either a fixed amount or nothing at all. This type of trade is also known as All-Or-Nothing. Binary Option trading is fairly new.
The potential profit of a binary option is known before the purchase is made. These options can be bought on either an “Up” or “Down” call. This means that an investor can go long or short on any financial product simply by buying a binary option. Binary options are offered against a fixed expiry time which may be e.g. 30 seconds and up to 30 minutes, an hour ahead or to the close of the trading day. There is no need to spend vast amounts of cash to get into this type of trading. Depending on the call a trader has made, he can profit from the up or down movement of the underlying asset.
A binary option automatically exercises, meaning the option holder does not have the choice to buy or sell the underlying asset.