Binary option: Difference between revisions

Revision as of 02:24, 25 May 2024

Revision as of 02:24, 25 May 2024

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{{Short description|Financial exotic option with an all-or-nothing payoff}}

{{Prone to spam|date=January 2014}}

A '''binary option''' is a https://futuretradebot.netlify.app/[[finance|financial]] [[exotic option]] in which the payoff is either some fixed monetary amount or nothing at all.<ref name="Breeden, D. T. 1978">Breeden, D. T., & Litzenberger, R. H. (1978). "Prices of state-contingent claims implicit in option prices". ''Journal of Business'', 621–651.</ref><ref name="Gatheral, J. 2006">Gatheral, J. (2006). ''The volatility surface: a practitioner's guide'' (Vol. 357). John Wiley & Sons.</ref> 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 [[NYSE American]]).<ref name="Ipedia">[http://www.investopedia.com/terms/b/binary-option.asp Binary Option Definition] Investopedia. Retrieved 2013-06-30.</ref>

While binary 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]].<ref name="Globes 12-15-16" /> Many binary option outlets have been exposed as fraudulent.<ref>{{Cite web |url=https://www.fbi.gov/news/stories/binary-options-fraud |title=Binary Options Fraud |website=Federal Bureau of Investigation |language=en-us |access-date=2017-05-30}}</ref> The U.S. [[Federal Bureau of Investigation|FBI]] is investigating binary option scams throughout the world, and the Israeli police have tied the industry to criminal syndicates.<ref name="FBI">{{cite news |last1=Weinglass |first1=Simona |authorlink=Simona Weinglass|title=FBI says it's investigating binary options fraud worldwide, invites victims to come forward |url=http://www.timesofisrael.com/fbi-says-its-investigating-binary-options-fraud-worldwide-invites-victims-to-come-forward/ |access-date=February 15, 2017 |work =[[The Times of Israel]] |date=February 15, 2017}}</ref><ref name="ToIidesofM"/><ref name=":1" /> The [[European Securities and Markets Authority]] (ESMA) has banned retail binary options trading.<ref name="esma.europa.eu">{{Cite web |url=https://www.esma.europa.eu/press-news/esma-news/esma-agrees-prohibit-binary-options-and-restrict-cfds-protect-retail-investors |title=ESMA agrees to prohibit binary options and restrict CFDs to protect retail investors |website=www.esma.europa.eu|access-date=2019-03-21}}</ref> [[Australian Securities & Investments Commission]] (ASIC) considers binary options as a "high-risk" and "unpredictable" investment option, <ref>{{Cite news |url=http://www.ibtimes.com.au/binary-options-trading-australia-how-safe-it-1568192 |title=Binary Options Trading In Australia: How Safe Is It? |date=2018-05-14 |work=International Business Times AU |access-date=2018-05-22 |language=en}}</ref> and finally also banned binary options sale to retail investors in 2021.<ref name="asic.gov.au">{{cite web |url=https://asic.gov.au/about-asic/news-centre/find-a-media-release/2021-releases/21-064mr-asic-bans-the-sale-of-binary-options-to-retail-clients|title=21-064MR ASIC bans the sale of binary options to retail clients |website=[[Australian Securities & Investments Commission]]|access-date=8 March 2022}}</ref>