A binary option
is a financial option, banned by regulators in many jurisdictions as a form of gambling, and many binary option outlets have been exposed as scams.
Binary options theoretically play a role in asset pricing and are a form of financial derivatives in which the payoff is either some fixed monetary amount or nothing at all.
The two main types of binary options are the cash-or-nothing binary option and the asset-or-nothing binary option. The cash-or-nothing binary option pays some fixed amount of cash if the option expires in-the-money while the asset-or-nothing pays the value of the underlying security. They are also called all-or-nothing options
, digital options
(more common in forex/interest rate
markets), and fixed return options
) (on the American Stock Exchange
Though binary options sometimes trade on regulated exchanges, they are generally unregulated, trading on the internet, and prone to fraud. The U.S. Securities and Exchange Commission
(SEC) and Commodity Futures Trading Commission
(CFTC) have issued a joint warning to American investors regarding unregulated binary options, and have forced a major operator
, Banc de Binary, to cease operations in the US and pay back all customer losses.
Many binary option "brokers" have been exposed as questionable operations. With such binary option brokers, there is no real brokerage; the customer is betting against the broker, who is acting as a bucket shop
. Manipulation of price data to cause customers to lose is common. Withdrawals are regularly stalled or refused by such operations.
In Israel, where a high concentration of such firms can be found, binary options trading was prohibited for Israeli customers in March 2016, on the grounds that it is a form of gambling and not a legitimate investment technique. A ban on marketing of binary options to overseas customers is under consideration.