A classic binary option is a type of financial contract with a fixed expiry time and a binary outcome. It is a type of derivative, since the outcome is based on the movement of something else, e.g. a stock price or a currency exchange rate.
They are called “binary” because with a classic binary option, there are only two possible outcomes: win or lose. You either finish in-the-money and get paid a predefined amount, or you finish out-of-the-money and lose 100% of your stake. There’s no in-between.
It should be said that this is how it is for classic binary options. In recent years, some binary option platforms have developed versions that aren´t really binary, but they are still marketed as binary options. You may for instance be able to close the option early to cut your losses during certain circumstances, or the financial contract might be constructed in a way where different price levels for the underlying assets result in different payouts. In this article, we will chiefly focus on classic binary options, where the outcome is truly binary.
How Binary Options Work
For a classic High/Low binary option, the concept is simple. A trader speculates on where the price of an underlying asset or financial product (such as a stock price, currency exchange-rate, commodity price, or index) will be above (High) or below (Low) a certain point (the strike price point) on a specific moment in time in the future (when the contract expires).
If the trader is right in their prediction, the trader receives a fixed payout. If the trader is wrong, they lose the entire stake.
Payouts for High/Low binary options are typically in the 60%-90% range, depending on the broker and the characteristics of the deal. You will know in advance exactly what the possible payout is for the binary option, before you buy it, e.g. this binary option will give you an 80% profit if it finishes in the money.
A High/Low Binary Option Example
Imagine a trader thinks the exchange-rate for the EUR/USD pair will rise and be above 1.1000 by 2:00 PM today. They buy a High binary option with that strike price and expiry time. The payout rate for the option is 85%. The stake is $100.
If at 2:00 PM today, the exchange rate is above 1.1000, they will receive the fixed payout. This means they get their stake back ($100) and their 85% profit ($85). In total, $185.
If the trader instead is wrong in their prediction, the trader loses the entire stake ($100).
For many traders, the appeal of the classic High/Low binary option is found in the simplicity. You don’t need to predict exactly how a market will move, only the direction and whether it will cross a line within a set timeframe. You know in advance exactly how much you will lose if you lose, and exactly how much you will profit if you profit. This combination makes binaries especially attractive to newer traders who might be overwhelmed by the complexities of traditional derivatives. But this simplicity is not without costs and it can create the illusion of easy profits. In reality, being a long-term profitable binary options trader is very far from easy, because the built-in odds strongly favor the house.
Payouts and Risk
Binary options typically offer payouts ranging from 60% to 90% of the stake. If you stake $100 on a 80% payout binary option and win, you will get your stake back ($100) and an $80 profit. If you lose, you lose the full $100.
This payout structure creates an unfavorable risk-reward ratio and you have to win significantly more than half of your trades just to break even. This math highlights how even small deviations in accuracy can flip your performance from profit to loss. It is one of the reasons why many traders lose money with binaries over time.
Timespans
At a binary options platform, you can usually chose between many different lifespans when you purchase a binary option. Short-term trading tends to be very popular, and this is reflected in the assortment. Many platforms even offer turbo options, e.g. options that will expire 30 seconds or 1 minute after purchase. When the timespan is super-short, the outcome often depends on tiny, random price movements, making it more gambling than traditional trading. Fast-paced and adrenaline-heavy, they’re popular but dangerous.
Types of Binary Options
Binary options all resemble each other, but there are several variations that tweak how the trades work. Each type offers different ways to bet on price movement. Here’s a breakdown of some of the most common types.
Important: Each binary options platform make their own rules. This means that even if something labeled Ladder Option has worked in a certain way on four other platforms in your past, the rules might be completely different as you try out platform #5. The information below is just general guidelines. Before you put any money at stake on a platform, you should absolutely read the terms and conditions published by that particular platform.
High/Low (Up/Down) Options
This is the most basic and widely known format. It is highly unusual for a binary options platform to not offer High/Low binary options.
The type is known under several different names, including High/Low, Hi/Low, and Up/Down.
The trader picks whether the price of an asset will be above (high/up) or below (low/down) a certain level at expiration. If your prediction is right, you get the fixed payout. If it’s wrong, the full investment is lost.
Example: You predict that EUR/USD will be above 1.1100 in one hour, and you buy a binary option that reflects this. If your prediction comes true, you get paid. If not, you lose the stake.
One Touch Options
With one-touch options, the trader wins if the underlying asset touches a pre-set price level at any time before expiration. It doesn’t matter what the price is at the end when the option expires, just that it touched the target at least once during the option’s lifespan.
This is a popular option type when a trader believes there will be volatility, but find it difficult to predict if the price will be high or low at a certain time. (High/Low options are more popular when a clear trend in a certain direction is evident.)
Example: This gold price one-touch option will pay if the gold price reaches $2,000 at any point before 5 PM today.
No Touch Options
This is the opposite of the Touch Option. The No Touch Option pays out if the underlying asset doesn’t touch a certain level before expiry. If it touches the level, even once, you lose your entire stake immediately.
Example: This gold price no-touch option will pay if the gold price never reaches $2,000 at any point before 5 PM today.
This type of binary option is popular among traders who use technical analysis to identify support and resistance levels, and feel confident in predicting a price will not reach a certain point during the lifespan of the option.
Double Touch/Double No-Touch
These are similar to Touch and No-Touch options, but there are two target prices instead of just one, and you will only get paid if the underlying price touches both (Touch options) or none (No-Touch option).
Range Options (Boundary Options)
In a range option (also known as a boundary option), you’re betting on whether the price will stay inside or move outside a set range between two price levels before expiration. This suits traders expecting low volatility (stay-in-range) or high volatility (break-out-of-range).
The in-range boundary option can be a good way to profit from a stagnant market. Example: Predict that the S&P 500 will stay between 4500 and 4600 by market close. If it stays in that range, the trade pays. If it breaks out, you lose.
The break-out-of-range boundary option is chiefly used when a trader expects strong volatility, but is not sure if the market will rise or drop (e.g. when reacting to news).
Ladder Options
Ladder options introduce multiple strike prices, like steps on a ladder. Each “step” has its own payout. The further the price moves in the predicted direction, the higher the payout.
Example: Predicting that a stock will rise above 105, 107, and 110 by expiry. Each level pays out differently.
Since more than two outcomes are possible, this is strictly speaking not a BINARY option. But ladder options are called binary options anyway and marketed together with the truly binary contracts.
Pair Options
These are less common and usually found on specialized platforms. Traders pick two assets (e.g. two tech stocks) and bet on which will perform better over a set period.
Asset-or-nothing
The asset-or-nothing binary option pays out the value of the underlying asset if the option expires in-the-money. If it expires out-of-the-money, you lose your entire stake.
How to Start Trading Binary Options
Trading binary options starts out looking easy. Click a button, make a prediction, and either win a fixed payout or lose your stake. But behind that simplicity lies a risky game, and most people who jump in without a plan end up blowing through their accounts fast. If you’re serious about trying it, here’s how to approach it without relying on luck alone. It is also a good idea to look at other available derivatives, to find out if binary options is the ideal choice for you, or if other contracts, with other characteristics, would be better for your goals and preferences.
Understand What They Are
Before putting real money on the line, it is important to understand how binary options actually work. They are a type of derivative. You’re not buying and becoming the owner of a stock or currency; you’re speculating on the price of the underlying asset. Binary options aren’t investments. They’re structured trades with fixed outcomes and they usually have short lifespans, especially on trading platforms for non-professional traders. You either finish in-the-money or you don’t. There’s no holding on and waiting for a rebound.
Binary options come with fixed expiry times, and they can be anywhere from less than a minute to 30+days. On retail trading platforms, intraday options tend to dominate, which means the lifespans are no longer than a trading day. The shorter the expiry, the higher the randomness. Longer expiries give your strategy more room to work but also require more patience.
Pay close attention to payout ratios. Some trades offer 60% returns, others 90%. But no matter how good the setup looks, if you’re wrong, you lose 100% of the stake. The math is tilted against you.
Pick a Reliable Broker
This part has become tricky, due to a combination of reasons. In the 2010s, retail binary options exploded in popularity, but also became a favorite lure used by fraudsters. Financial authorized around the world reacted in various ways to this, and many of the ones known to enforce strong trader protection rules decided to ban brokers from selling binary options to non-professional traders (retail traders).
It is important that you understand your local rules and make smart decision. In some countries, retail binary options are still legal, but with heavy restrictions. Example: The United States allows them, but only when traded on specially licensed exchanges (such as Nadex).
Even if brokers are banned from selling binary options to retail traders in your country, you will probably be able to access a platform, sign-up and start trading. However, you are operating without much legal protection, and there are many sketchy and fraudulent platforms out there. You will need to investigate the platform yourself, because your local financial authority is not supervising it for you. Look for transparency around payouts, withdrawal rules, fees, and platform performance. Don’t fall for high-pressure sales calls, account managers promising guaranteed returns, or platforms that make it hard to withdraw your money. Try to find independent reviews and research a platform´s reputation among online retail traders.
Use a Demo Account First
Before you make any deposit, open a demo account. This is your test zone. Trade using free play-money, try out strategies, figure out how the platform works, and watch how different markets move. See if the platform is high-quality or clunky. It’s not just about learning the buttons, it’s about actually using the platform for trading (with fake money) while also seeing how prices reacts to news, how time decay hits your trades, and how easy it is to lose when you’re overconfident.
Trading with a demo account won’t prepare you emotionally for real losses, but it can prevent you from making basic errors right out of the gate. You might also realize that the platform is low quality, or simply not right for you.
When a platform is not offering a free demo account, consider that a warning sign.
Start With a Simple Strategy
Pick one basic strategy and stick to it. Most new traders try everything at once (trading news events, following chart patterns, jumping from day-long to 30-second options) and end up with no clear direction. Instead, choose something like a basic high/low option. Use a single technical indicator (say, a moving average crossover or RSI). Keep your trades simple. Keep it small. Do not risk more than 2 percent of your account balance on any one trade. If you have $500 in your account, that means risking $10 per trade max. This might feel slow, but speed kills in binary trading. A few big losses in a row and your balance will disappear.
With classic binary options, many of the standard risk-management routines employed by traders are off the table. Once the position has been opened, you can not close it before expiry, which means you can not use orders such as stop-loss, take-profit, trailing stop-loss, etcetera. Your main risk management tools will therefore be to keep the stakes small (in relation to your account size) and be picky about when you put any money on the line. Only go for opportunities that fit your trading strategy.
Learn Basic Technical Analysis
Many binary options traders use technical analysis, especially for intraday trading. You don’t need a PhD in charting to get started doing this, but you do need to understand the basics. Learn how to read candlestick patterns, recognize support and resistance levels, and use volume indicators.
Common indicators used by binary traders include:
- RSI (Relative Strength Index): For spotting overbought or oversold conditions.
- MACD (Moving Average Convergence Divergence): For spotting momentum shifts.
- Bollinger Bands: For identifying periods of volatility or calm.
- Moving Averages: For spotting trends and crossover points.
Combine these with time-of-day knowledge (like knowing when markets are volatile) to improve your odds.
Track Your Trades and Adjust
Keep a trading journal. Write down every trade: entry price, direction, entry and exit times, reasons, result, and emotion. Over time, patterns will emerge: both good and bad. You’ll learn what times you trade best, what setups are profitable, and what triggers bad decisions. Many beginners lose not because they can’t pick direction, but because they overtrade, double down on losses, or ignore their own rules after a few wins or losses.
Stay Away From Shortcuts
There’s no magic formula. No robot, no YouTube guru, no secret indicator will make binary options trading easy. If someone promises guaranteed profits or wants to “manage” your account for you, walk away. The only way to improve is through consistent practice, an ability to learn and adjust, and brutal honesty about what’s working and what isn’t.
Know When to Quit
Binary options trading isn’t for everyone. The fast pace, all-or-nothing outcomes, and temptation to chase losses can mess with your head. If you find yourself trading emotionally, revenge trading, or treating it like a game, step back. Protect your money and mental health. Treat it seriously. Don’t chase every setup. Don’t bet the rent. Don’t fall for the casino effect. If you’re going to do it, do it smart. If you can´t, don´t do it at all.
Sometimes, instead of taking a break, we should quit for good. There is no shame in revealing that binary options trading is not the ideal fit for you. Also, as mentioned above, the math is stacked against the trader, and many of the platforms are sketchy. If you are failing to become profitable over time, do not hesitate to investigate if other instruments, offered by strictly regulated brokers, are actually more aligned with your trading preferences.
Regulation and Legality
The legal status of binary options varies wildly across countries, mostly because of how frequently they’ve been abused by fraudsters. Many law makers and financial authorities have stepped in to protect traders, especially non-professional ones, by imposing restriction on how binary options can be marketed and sold. So if you’re thinking about utilizing binary options, knowing the rules where you live is step one.
Some countries have no clear rules pertaining specifically to binary options. Others acknowledge them as financial products and regulate them in some way, and this regulation can run the course from extremely lax to outright bans.
Many of the financial authorities known to enforce strict trader protection rules have banned brokers from selling binary options to retail traders (non-professional traders). General brokers that wanted to stay in these jurisdictions typically stopped selling binary options, while entities that wanted to keep their business model moved to jurisdictions where the practice is legal. In many of these more permissive countries, brokerage companies that sell financial products online are not regulated and supervised in any strict way, especially not as long as they are not selling any products locally.
Examples of jurisdictions that have become popular among binary options platforms that market their products internationally are the Marshall Islands, Belize, and Saint Vincent and the Grenadines. These places don’t enforce much, if any, oversight.
Below, we will take a look at a few examples of how binary options are regulated around the globe.
United States
Binary options are legal in the U.S., but only when bought and sold on regulated exchanges with special permission. The two primary bodies overseeing them are the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC). If you’re a U.S. resident, you can trade binary options on exchanges like the North American Derivatives Exchange (Nadex).
Some binary options platforms based in other countries will still let U.S. residents open accounts, but these platforms are breaking U.S. law.
Israel
Israel used to be a hub for companies selling binary options globally. After reports of widespread fraud and misconduct, the Israel Securities Authority (ISA) banned companies based in Israel from selling binary options domestically and abroad. The process consisted of two steps. In March 2016, ISA banned binary options trading in Israel. In October 2017, the ban was extended to encompass binary options brokers in Israel even when all clients were outside Israel. This effectively stopped Israel from being a binary options hub for global operations.
European Union
In the EU, selling binary options to retail traders was temporarily banned by the European Securities and Markets Authority (ESMA) in 2018. The reason? Too many retail customers were losing money, often due to opaque pricing, aggressive marketing, and outright fraud. The ban was temporary and the idea was to encourage each membership country to assess the situation and enact their own national regulation. This is exactly what happened, and after a while, ESMA decided to not prolong the temporary ban, as each country had been given plenty of time to act. Today, most EU membership countries heavily restrict binary options trading to protect non-professional traders.
When ESMA enacted their temporary ban, some membership countries already had binary options limitations in place. One notable example is Belgium, where the Financial Services and Markets Authority (FSMA) had been prohibiting the marketing, distribution, and sale of binary options and certain other high-risk derivatives to retail investors since august 2016. Also in 2016, France’s Autorité des Marchés Financiers (AMF) announced measures to outlaw the advertising of binary options and other high-risk financial derivatives to retail clients in France. This move was a part of the larger Sapin II law, which aimed to increase financial transparency and protect retail traders and investors. In Spain, the Comisión Nacional del Mercado de Valores (CNMV) announced, in 2017, that they considered binary options and highly leveraged CFDs are unsuitable for retail investors. This was not a formal ban, but it did restrict the marketing and sale of such products in Spain.
One example of a country where selling binary options to retail clients was legal until 2018 is Cyprus. Prior to 2018, Cyprus was a very popular country for companies that wanted to sell binary options within the European Union. (If a financial company is licensed by one of the membership countries, it is automatically permitted to be active throughout the union.) The Cyprus Securities and Exchange Commission (CySEC) was the first European Union MiFID-member regulator to recognize binary options as financial instruments and demand (from 2012) that binary option brokers registered as financial instrument brokers and fulfilled all the applicable requirements. In 2018, CySEC changed their stance and put a temporary ban in place along the lines of the ESMA ban. A permanent ban went into effect in July 2019.
United Kingdom
When ESMA enacted the temporary ban in 2018, the UK was still a member of the EU, and became one of the first membership countries to enact their own retail ban on a national level. When the UK left the EU, the UK Financial Conduct Authority (FCA) kept the ban. Brokers are not permitted to market, offer, or sell binary options to retail traders in the UK.
Australia
Australia used to be a hub for binary brokers, but the Australian Securities and Investments Commission (ASIC) banned the sale of binary options to retail clients in 2021. The regulator cited various reasons, including the high risk and structural bias against traders. The ban is technically a product intervention action, and must therefore be actively prolonged to remain in action. At the time of writing, it has been extended to 1 October 2031.
Canada
Since September 2017, the Canadian Securities Administrators (CSA) prohibits platforms from offering and selling binary options with a lifespan of less than 30 days to retail clients. Even advertising them is illegal. Since retail binary options platforms want to sell short-term options, the ban effectively made the retail binary options companies leave Canada, and no binary options platform is currently licensed by the CSA.
Each Canadian province has the legal power to enact even stricter bans if they want to.
Japan
The Financial Services Agency (FSA) in Japan oversees binary options and enforces minimum durations, transparency on payouts, and clear disclosures.
Indonesia
In Indonesia, the Commodity Futures Trading Regulatory Agency (CoFTRA), also known as BAPPEBTI, considers binary options a type of online gambling. Binary options trading online is therefore illegal in Indonesia, under the normal gambling law. The government actively blocks binary options websites from being accessed from Indonesia, although it is of course a bit of an ongoing cat-and-mouse game where some platforms deliberately try to fly under the radar and avoid getting blocked.
Scams and Other Issues Your Need to Be Aware Of
Binary options can sound like the perfect entry point for anyone looking to make fast money in the markets. They’re marketed as easy, low-cost, and beginner-friendly. No need to worry about margin, stop-loss orders, take-profit orders, complex risk management, or deep market knowledge. Just pick a direction, buy a High/Low option, and watch the countdown.
In reality, becoming a long-term profitable binary options trader is very difficult, and that is true even if you manage to find a reputable platform that will not engage in price manipulation or other sketchy practices. Look at the math, and you will see that the odds are never in your favor. Binary options are structured to offer fixed payouts, often around 70–90% if you win, but a 100% loss when you don’t. That means even with a 50/50 win rate, you’re under water. To just break even, you need to be right much more than half of the of the time. And that’s under ideal conditions: emotional errors, no platform issues. The average retail trader doesn’t have those conditions. Most end up chasing losses, doubling down, and blowing their accounts before they’ve learned enough to stand a chance.
Example: Let’s say you bet $100 on a trade with an 80% payout. If you win, you get $180. If you lose, you get $0. You’d need to win at least 56% of your trades to make any profit in the long run. That’s before factoring in platform fees, emotional errors, or technical hiccups. Now imagine doing this 10, 20, or 50 times a day under pressure. One bad streak, and you’re chasing losses. Two bad streaks, and you’re wiped out.
As if this mathematical issue was not enough, the binary options sphere is rife with fraudsters. Below, we will take a look at few things that are good to know before you decide if you want to trust a binary options platform with your money.
How to Decrease the Likelihood of Being Scammed
If binary options are legal in your country and regulated by a financial authority that you trust, pick a broker that is authorized by that authority. Always verify the broker’s license directly through the regulator’s website. Don’t rely on what the broker claims; check for yourself. Also ask the financial authority if the money in your account will be covered by a governmental investor insurance, in case the broker becomes insolvent and has commingled your funds with company money.
You also need to learn about common red flags and financial frauds, to become better at spotting warning signs. Once your money is gone, it’s usually gone for good. Legal recourse is limited, especially if the broker is based in a lax jurisdiction or is using a complex set up that involves several countries. Some platforms will manipulate price feeds to ensure you lose money. It is a well-known issue, but very difficult to prove in the individual case.
Examples of warning signs
- Unrealistic promises, e.g. “risk free” trading and “guaranteed” profits
- Aggressive sales tactics, e.g. phone calls and offers that encourage you to make the decision very quickly or lose out.
- Pressure to deposit more money.
- Pressure to engage in more risky trading, including bigger trades.
- The platform assigns a “personal manager” to you, and that manager is just a sales person applying high-pressure sales tactics. These are usually salespeople working for commission, not professional financial advisors.
- Fake testimonials
- Paid celebrity and influencer endorsements, especially when combined with unrealistic claims
- Having a reputation of stalling withdrawals
- Offering massive deposit bonuses and similar gimmicks
- The platform has only existed for a very short time. Maybe it has no poor reviews because no one has realized that they are being scammed yet.
- If it feels more like a casino than a trading platform, it probably is.
Rigged Platforms
Even though binary options themselves aren’t scams, many platforms offering them are. Especially the loosely regulated ones. Prices don’t always match the real market. Orders “freeze” just before expiration. Withdrawals get delayed or denied. Account managers push users to “go big” with bonuses that come with hidden terms.
One some platforms, everything will run smoothly until your have made a nice profit and is trying to cash out. Suddenly you need to verify your identity in ways that drag on for weeks, and no amount of documentation seem to be enough. Then, your winning trades are suddenly being re-examined. Or you’re told you didn’t meet some bonus condition, so your profits are void or your account is locked.
Psychology
Retail binary options platforms tend to encourage fast and frequent trading. Short expiry times (e.g. turbo options that expire 60 seconds after purchase) trigger the same dopamine loops as short-term gambling. Win once, and the next bet feels “free.” Lose once, and you double down to get it back. The end result? A bankroll that evaporates in an afternoon. There’s little time to think, plan, or assess risk. That’s by design. The structure rewards impulsive behavior and punishes patience, which makes it appealing for the wrong reasons. And since the odds are stacked against you, the faster you trade, the faster the platform makes money from your losses.
If you were in a casino, placing $100 on red at the roulette table, you would be aware that this is gambling. When we engage in super short-term trading at a trading platform, it is easy to delude ourselves into thinking that we are skilled traders making rational market predictions about price movements 30 seconds into the future. It can take much longer to realize that we are actually engaging in a behavior that is triggering the same emotions as casino gambling.
Education as a Marketing Tool and Sales Pitch
Many binary option platforms run “educational academies” full of beginner videos, webinars, and e-books. Regrettably, it is not uncommon to find platforms where these materials do not teach much in the way of actual market understanding and proper risk management. They teach just enough to keep users engaged, e.g. some superficial knowledge about candlestick patterns, support and resistance, and trend lines. Enough to make the trader feel smart, but not enough to build a long-term profitable strategy. Inexperienced traders are encouraged to risk big money in an environment that feels like trading but drains like a slot machine.
Actually becoming a good trader on the financial markets can take months of study and practice, even when using instruments that give you better conditions than binary options.
The Success Stories Are Rare, and Often Misleading
There are traders who’ve made money with binary options, but they’re the exception, not the rule. many of the success stories you see online are ads, affiliates, or fake reviews meant to draw you in. They’re crafted to make it look easy. They rarely mention the losing months, the scams, the unrecoverable funds, and the inherent conflict of interest that comes with having your broker as your counterpart in each trade.