Binary options are fairly new to the speculation/trading landscape. They are called binary options as there can only be two possible outcomes. There are two types. Either cash-or-nothing binary options or asset-or-nothing binary options. They are binary in that you get all or nothing. They are also called all-or-nothing options, digital options (more common in forex/interest rate markets), and Fixed Return Options (FROs) (on the AMEX). Binary options are usually European-style options.
There are two ways of going with this as well. There is exchange traded binary options such as offered on the NADEX and there is non-exchange traded options. Each are structured differently. With exchange traded binaries, there is a set strike price. With most non-exchange traded binary options, you set the strike price upon entry. Your strike is your entry in the trade. It then expires in or out of the money. Structure of payouts are also different. Both Amex and CBOE listed options have values between $0 and $1, with a multiplier of 100, and tick size of $0.01, and are cash settled. In 2009 Nadex, the North American Derivatives Exchange, launched and now offers a suite of binary options vehicles. Nadex binary options are available on a range Stock Index Futures, Spot Forex, Commodity Futures, and Economic Events.