In the field of finance , a binary option is one whose profitability is either a certain fixed amount of some assets or nothing at all. The two main types of options are cash-or-nothing or assets-or-nothing. The binary option in cash-or-nothing pays a certain amount of cash if at the expiration of the option the value is quoted above the amount paid in-the-money , nothing being received otherwise (” out-the -money “). Therefore, the options are binary in nature, because there are only two possible outcomes. They are also known as all or nothing options, digital options (more common in Forex / interest rate markets), and fixed income options (FRO) (in the American Stock Exchange).

When buying a binary option the potential performance it offers is known before making the purchase. Binary options can be purchased in almost any financial product and can be purchased in both directions of commerce, either by buying a “Call” or “Purchase” or by buying an option “Sale” or “Put” . This means that an investor can go long or short on any financial product simply by purchasing a binary option. Binary options are offered against a fixed expiration time, which may be, for example, 60 seconds and a maximum of 30 minutes, one hour before or at the end of the trading day. For example, the purchase of an option of Banco Santander is made when it quotes at 6 euros, if in the future at the date of its expiration the stock trades above the price that we buy the asset we will receive the offered benefit, if the shares quote below 6 euros, nothing is received.

In the Black-Scholes model, the value of a digital option can be expressed in terms of the cumulative normal distribution function. Due to the difficulty in the coverage of the binary options that are close to expire, which are much less commercialized than the “vanilla” options , but can be approximated with vertical margins.


Binary options not traded on the stock exchange

Binary options contracts have been available ” over-the-counter” (OTC), that is, sold directly by the issuer to the buyer.

Since mid-2008, binary options websites called binary options trading platforms have been offering a simplified version of binary options traded on the stock market. It is estimated that around 90 of these types of platforms (including white label products) have been in operation since January 2012, and offer options in some 125 underlying assets. The platforms offer standardized short-term binary options with a loss of pre-determined benefits, which can not be settled (buy or sell closing) before expiration.

Regulation and registration 

On unregulated platforms, customers’ money is not necessarily held in a trust account as required by regulation and operations are not controlled by a third party to ensure fair play.

On May 3, 2012, the classification of binary options as financial instruments. The effect is that the binary options platforms that operate in Cyprus (where many of the platforms are based) will have to be 1 regulated within six months of the call date. CySEC was the first of the EU MiFID regulator members to treat binary options as financial instruments.

In March 2013, the Financial Services Authority of Malta announced that the regulation of binary options is transferred out of the Malta Lottery and the Gaming Authority. On June 18, 2013, the Financial Services Authority of Malta confirmed that the supervision of binary options fell under the scope of application of the Financial Instruments Market Directive (MiFID), 2004/39 / EC. With this announcement, Malta became the second jurisdiction of the EU to regulate binary options as a financial instrument, suppliers will now have to obtain one of the 3 categories of Investment Services licenses and meet the minimum capital requirements of the MiFID.

Prior to this announcement it would have been possible for companies to operate with a simple permission from the Gaming Authority. While binary options trading in the United States is not illegal, there is currently no regulation of binary options in the United States. On June 6, 2013, Banc De Binary was charged by both the CTFC and the SEC for alleged violations of the US Financial Regulations.. Both the CTFC and the SEC in collaboration with others have filed civil lawsuits against the company, seeking restitution, as well as economic sanctions, as well as other non-innovative and permanent measures against Banc De Binary. In civil suits filed in Nevada, the SEC and CTFC allege that Banc of Binary offered off-exchange options traded on behalf of US clients and illegally requested US customers to buy and sell options.

The company was fined in 2016 with US $ 11 million by the US regulator, which found that it had illegally sold binary options to citizens of that country.