A binary option is a financial exotic option in which the payoff is either some fixed monetary amount or nothing at all.[2][3] The two main types of binary options are the cash-or-nothing binary option and the asset-or-nothing binary option. The former pays some fixed amount of cash if the option expires in-the-money while the latter 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 (FROs) (on the American Stock Exchange).[4]
While options may be used in theoretical asset pricing, they are prone to fraud in their applications and hence banned by regulators in many jurisdictions as a form of gambling.[5] Many option outlets have been exposed as fraudulent.[6] The U.S. FBI is investigating option scams throughout the world, and the Israeli police have tied the industry to criminal syndicates.[7][8][9] The European Union is publishing regulations that will ban options trading.[10] ASIC considers options as a “high-risk” and “unpredictable” investment option.
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