Also known as a digital option – a type of option that offers a simple yes-or-no outcome: it either pays a fixed amount if a certain condition is met, or it pays nothing at all. This all-or-nothing payoff structure makes binary options very different from standard vanilla options, where the payout varies with the price of the underlying asset. 

For example, let’s say a company buys a binary option that pays $10,000 if EUR/USD reaches 1.1200 before the option expires. If that rate is hit-even for a moment-the company receives the full payout. If the rate never touches that level, the option expires worthless, and the company loses the premium it paid. 

Binary options can be structured around different conditions, such as whether a price touches or does not touch a certain level, leading to related products like One Touch and No Touch Options. These instruments are often used in speculative strategies or for structured hedging, but their simplicity can be misleading, as they involve sharp risk/reward trade-offs and typically offer no partial payout.