Binary Options: Difference between Vanilla and Binary Options
Binary Options is relatively new trading option which with the right strategy can be used as an alternative income stream and investment tool as it can generate profits from 70% to 85% per hour. Online trading platforms are now trading in major International Indices, Stocks, Currencies as well as Commodities.
Let us differentiate between traditional Vanilla options and Binary options. Many traders are quiet familiar with vanilla options. They are regular options available on most of the binary options broker platform. Binary options on the other hand are new investing method; however their use is increasing at a huge speed.
What are the differences between two types of options?
Vanilla options have two types of expiry times either monthly or quarterly while binary options have more varied and immediate expiries of end of the hour, day, week or month. The payout in Vanilla options will depend on the difference in the price change between the price of the asset at purchase and its current price while payout in binary options is fixed when the option is bought. Vanilla options can be executed at any time up to time of expiry while binary options cannot be executed before their expiry time. To be in the money in Vanilla options, their price must have risen by a certain amount while binary options need only move a small amount in the right direction to be in the money.
Let us discuss binary option with an example. If a trader purchases $200 Stock binary option with a 80% payout, then at the expiry time he will either receive a $360 payout if his option expires in the money or nothing or certain percentage amount of compensation provided by binary options broker(depending on the binary option platform, this can be as much as 10%) if it expires out of the money. Hence the traders don’t have to pay more money then his initial investment which in this case is $200. Hence binary options are also called "all or nothing".