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Unlike other types of options, a binary option does not give the option holder the right to purchase or sell the underlying asset. When a binary option reaches its expiry, the holder receives a fixed cash payout if they have picked the price movement correctly. This is usually a percentage of the cost of the binary option contract. If you don't choose the price movement correctly, you lose your entire investment what you paid for the option. Binary options can be based on various products including shares, forex foreign exchange , economic events, commodities or market indexes.

There are unlimited variations of these two types of binaries, including combinations with plain vanilla options. Many structured products contain binary type rules where the interest on a deposit pays for the binary for an event to occur or not to occur.

While binary options seem simple, picking short-term price movements of markets or asset prices is extremely difficult. Before you consider investing in binary options, it is very important that you understand how the type of binary option you are using works and how it is priced. You'll also need to be comfortable with the fact that you are risking all of the money you invest. Most binary option providers operate through online platforms.

Binary options are a financial product based on the underlying market or asset price moving in a certain way before the binary option expires. If the statement proves true, the binary option will settle at If the statement proves false, the binary option will settle at 0. If you agree with the binary statement you buy the binary option in anticipation of it settling at If you disagree with the binary option statement you sell the binary, expecting it to settle at zero.

Until expiry, the binary option price will move between 0 and depending on how likely the outcome is. Once you acquire a binary option, there are no further decisions for you to make as to whether or not to exercise the binary option because binary options exercise automatically. Binary options traders must have an AFS licence.

If you are setting up an account, make sure you are dealing with a licensed operator before you hand over copies of your personal identification documents, such as a driver's licence.

Check operators are licensed on ASIC's professional registers. Richard visited the company's website and saw that they offered binary options on the shares of some large, well-known companies. He decided binary options were too risky for him and that he'd be better off focusing on his share portfolio. Binary options are speculative, high risk products, where you can easily lose your entire investment. Once you buy a binary option contract you may not able to re-sell it before the expiry date.

You need to understand the implied probability the true odds of an event occurring from the binary price. There may also be a risk that the binary options provider won't be able to fulfil its obligations to you if something goes wrong counterparty risk.

Skip to Content Skip to Sitemap. Enter a search term. Home News Don't be lured into binary options scams Listen. Don't be lured into binary options scams 9 September How these scams work You receive a call out of the blue offering a secure investment with fast, high returns. The scammers have professional looking websites to help them appear legitimate, usually with a login process, personalised account details and a trading platform.

If you guess correctly, the account is credited with a small return. If you guess incorrectly, you lose the entire amount placed. The odds are stacked against you so it is very likely that you will lose over time. When you attempt to withdraw money, you find it almost impossible to do so and often lose the entire investment. Binary option scammers will also ask for personal information, claiming they need it to transfer money or that it is required for anti-money laundering purposes.

Providing this information can leave you open to identity theft. Protect yourself Consider any approach for investment offers carefully, especially if they are over the phone.

Be suspicious of investment opportunities that promise a high return with little or no risk. Check ASIC's list of companies you should not deal with. If the company that called you is on the list - don't deal with them.