What are the differences between binary options and vanilla (ordinary) options ?
Both binary options and ordinary (vanilla) options generate gains based on the price of the underlying asset at expiry. In respect to binary options, the gains and losses are predefined and do not change.
Vanilla options are much more risky as the potential benefits are not limited. They are based upon the actual price of the stock, whereas the binary option is not based upon the price of the stock at expiry but the direction in which it has trended.
Here are the main differences between binary options and ordinary options
|Ordinary Options||Binary Options|
|Expiry||Once a month||Expiry varies: day-end, every hour or every 15 minutes.|
|Profit||Variable, based on the price of the underlying investment||Fixed|
|In the money||Requires a specific relation between the option cost and the price of the underlying asset||Price variations are not considered. Only the direction (increase or decrease.)|
|Execution||Options can generally be excercised at any time before expiry||Cannot be exercised before expiry|
|Right to buy||The option owner has the right to exercise options and convert them to shares (in the case where the option expires « in the money.»)||Cannot be excercised in shares|
Warning: Trading Binary Options involves substantial risk and may lead to loss of all invested capital.