A conventional binary option pays you a pre-determined amount if a condition (yes/no) is true at expiry, and you lose your entire stake if it is false.

Example: You buy a EURUSD 1.0800 binary option “above at 10:30” for $100, with a pay-out rate of 85%. If at exactly 10:30 the market is even a tick above 1.0800, you earn a $85 profit, and get $185 sent to your account (stake + profit). If it instead is at 1.0800 or below, you lose the $100. There’s no partial payoff for being close, and the size of the move doesn’t matter. You don´t get paid more for 1.0901 than for 1.0801.

Binary options can seem appealing at first, but they come with some serious drawbacks. For most traders, there are other products available that are more suitable. In this article, we will take a closer look at binary options, how they work, and why most traders should avoid them.

Binary options compress direction, timing, and cost into a single flip with an edge that rarely favors the buyer. The format looks simple, but the math isn’t on your side. If you want to speculate, it is usually smarter to use instruments where payoffs scale with the move and exits are under your control.

Binary Options are also known as Digital Options and All or Nothing Options.

looking at binary options on phone

Different Types of Binary Options

In the example above, we looked at a conventional binary option of the above/below type, also known as a call/put binary option. This is the standard type of binary option and pretty much every binary options trading platform will offer it. If you think the price of the underlying asset will be above a certain point at expiry, you buy an above (call) binary option. If you think the price of the underlying asset will be below a certain point at expiry, you buy a below (put) binary option.

Due to the popularity of the call/put binary option, many trading platforms started to develop new formats by tweaking the original format a bit. Some of the new variants are not even truly binary, since more than two outcomes are possible, but they are still marketed under the umbrella term binary options.

Regardless of what a binary option is named, it is very important to check the fine print. Each trading platform can come up with their own names, labels, and rules, and a Ladder binary option at platform A might not follow the same rules as a Ladder binary option at platform B.

Here are a few examples of commonly available binary options variants:

  • One-Touch binary option. You get paid if the price touches a certain pre-determined point at any time before the option has expired. The opposite is a No-Touch binary option, where you get paid if the price never touches a certain pre-determined point at any time before the option has expired.
  • Double Touch pays if the price touches either of the two levels before expiry. The opposite is the Double No Touch, which pays if the price touches none of the two price point for the entire duration of the option. These options are often used in range-bound or highly volatile market expectations.
  • In/Out Options are also known as Boundary Options. You predict whether the price will stay within a defined range (In Option) or exit the range (Out Option) before expiration. With an In Option, you get paid if the price stays between the upper and lower boundaries. With an Out Option, you get paid if the price moves outside the range.
  • Ladder options offer several predefined price levels (“rungs”), and you predict whether the asset will close above or below each level at expiry. Higher rungs offer higher payouts but lower chances of success. Ladder Options provide tiered risk/reward outcomes instead of a simple win/lose. They are therefore not truly BINARY options, since there are more than two possible outcomes.
  • The Pair Option allow you to bet on the relative performance of two assets, i.e. whether one will outperform the other over a set time period. Example: Will Apple stock outperform Microsoft stock by the end of the day?

Asymmetrical Risk-Reward

Conventional binary options will usually pay you a profit in the 70%-90% range if your prediction comes true, and you know in advance, before you buy the option, exactly what the payout will be if you turn out to be correct. This is appealing to many inexperienced traders, who like to know beforehand exactly how much they will lose if they lose, and exactly how much they will profit if the profit.

If we scratch the surface of that appealing proposition, it becomes clear that the math is really stacked against the trader. On most online binary options platforms, your broker is also your counterpart in each trade, which means they profit when you lose, and vice versa.

Example: If you buy a binary option where the pay-out ratio is 90%, it means you will get a 90% profit if you are right. But you lose 100% of your stake if you are wrong. This setup creates a built-in negative expectation that works against the trader over time, and benefits the platform.

To illustrate, imagine risking $100 on this binary trade. If your prediction is wrong, you lose the full $100. But if you’re right, your profit is only $90. You’re risking $100 to make less than $100, meaning the potential reward is always smaller than the potential loss. This imbalance is fundamentally unfavorable to the trader.

Because of this design, you need to win much more than half your trades just to break even. For instance, with an 80% payout, you’d need to win at least 56% of the time to avoid losing money over time. At anything below that win rate, you are mathematically guaranteed to lose in the long run. The payout odds are stacked against you.

This payout structure benefits the platform, not the trader. It’s a system designed to generate consistent profits for the house by ensuring that the average expected return for the trader is negative. Just like a casino pays less than fair odds on its games, binary options platforms do the same with their contracts.

Difficult to Risk-Manage Properly

When you chose binary options trading instead of traditional trading (e.g. stock trading), you deprive yourself of many of the risk-management tools that are available to traditional traders.

In traditional trading, you can put in a stop-loss and cut your losses early, and it is also possible for you to adjust position size and scale in and out as the market evolves. Conventional binary options don’t allow for that flexibility, because you’re locked into a fixed bet. If you’re right at the exact time of expiry, you win a fixed payout. If not, you lose it all. Even if your prediction was directionally correct but slightly mistimed, you still lose the entire trade.

Fast-Paced Trading

In theory, it is possible to create a binary option with any lifespan, e.g. 48 hours or 30 days. In practical reality, binary options platforms tend to focus strongly on short and super-short lifespans, and promote very intense and fast-paced trading.

It is not unusual for platforms to sell binary options that expire 30 seconds or 60 seconds after purchase, which is extremely quick, and this design is a part of why they’re so risky, especially for inexperienced traders. Some platforms even gamify the experience with leaderboards, bonuses, or instant rewards for frequent trading, and all of this combined can create an environment that is more similar to a gambling hall than a trading platform.

Short timeframes increase exposure to market noise and random price fluctuations. The shorter the expiry, the less trades are based on actual analysis or market fundamentals, and the more they rely on chance. Even if you have a solid idea about where the market is going, a single candle spike in the wrong direction during your 60-second window can wipe out your trade.

The structure of binary options, where you lose 100% of your stake if you’re wrong, and only gain a smaller profit (usually 70–90%) if you’re right, means that frequent trading typically rack up losses quickly. The more trades you place under these odds, the faster your account can drain.

Binary options platforms promote speed because it’s profitable for them. The more trades you place, the more likely the mathematical edge (which favors the platform due to the negative payout structure) will play out in their favor. And for the trader, the faster you go, the less control you have, turning what should be a strategy-driven activity into a risky, loss-prone cycle. In many ways, it becomes short-term gambling rather than trading, but since we are not actually in a casino, it is easy to delude ourselves into thinking we are making rational choices as traders and not putting it all on red at the casino table like gamblers. When we get a few correct predictions in, and see our account balance grow quickly, it is easy to believe that we are remarkably skilled traders who really know how the read the markets, when in reality, the outcome was chiefly based on luck and not skill.

Counterparty Risk

Counterparty risk is the risk that the other party in a trade won’t fulfill their obligations. In binary options, the counterparty is usually the platform, which creates a built-in conflict of interest. When you profit, the platform loses, and vice versa.

Regrettably, the binary options field has become rife with fraudsters who are not satisfied by simply enjoying a set-up where the odds are already stacked against the trader. Instead of enjoying that steady stream of profits, they move into outright fraud, e.g. by manipulating price data feeds on the platform to ensure that your big winning trade is registered as a loss. This can be incredibly difficult to prove, and in many cases, traders do not even realize what is going on since they rely completely on the data displayed on the platform.

Since binary options come with their built-in problems, and so many scammers are using binary options to lure in victims, many of the stricter law makers and financial authorities around the world have banned brokers from selling binary options to retail traders (non-professional traders). The binary options platforms online that still offer binary options to retail traders in countries where it is banned are typically based in lax jurisdictions where the local authorities will not bother them. If you sign up with this type of broker, you have very little recourse if something goes wrong.

Examples of commonly reported problems associated with binary options brokers who are not supervised by a strict financial authority:

  • Delayed executions
  • Price data feed manipulation
  • Withdrawal requests are stalled without cause
  • Withdrawal requests are denied without cause
  • Bonus offers with opaque terms and conditions
  • Unexpected and unexplained account suspensions, especially after a winning streak
  • Traders are assigned “Account Managers” that employ high-pressure sales tactics to manipulate them into depositing more money, trading more frequently, and taking on bigger risks.

If the platform disappears or the company behind it becomes insolvent, your funds are likely to simply vanish, since they are not based in countries with governmental investor/trader insurance programs.

Note: Your deposited amount is not the only thing at risk. Some fraudsters are using binary options trading as a lure to get their hands on your personal data, e.g. copies of your ID and utility bills, to use for identity theft.

There Are Better Ways To Speculate

If you want to speculate on market movements, there are solutions that are more beneficial for the trader than the binary options, e.g:

  • Vanilla options
  • ETFs
  • Micro futures
  • Micro CFDs

They are not low-risk, but they are better than binary options. The chance of you burning through your account is still high and proper risk-management is essential. One of the benefits of picking something from the list above is that even as retail trader, you can use a broker regulated and supervised by a strict financial authority, such as UK FCA, CySEC, or ASIC. You will also have risk-management tools at your disposal, such as stop-loss orders and take-profit orders.


If your trading idea is that the price will drift upward over a few hours, using a vanilla call or a small CFD position would better align your payout with the actual size and pace of the move, and also allow you to manage the trade as it unfolds. A binary option, on the other hand, reduces that entire process to a single moment, turning your trade into more of a coin flip, and the potential profit is capped from the start.

Vanilla Options

Vanilla options, such as standard calls and puts, provide a payoff that scales with the price move at expiry, giving a more nuanced exposure than what can be achieved through conventional binary options. The path of the price matters, influenced by factors like volatility and time decay (the “Greeks”). You can close or adjust your position at any time before expiry, offering flexibility. Some vanilla options are exchange-traded, which means increased transparency.

CFDs (Contracts for Difference)

CFDs offer a linear payoff: your profit or loss directly mirrors the price movement of the underlying asset. Path matters continuously, as every tick affects your P&L. Like vanilla options, CFDs give you full control to exit or hedge at any time. Broker models vary, with some acting as market makers and others passing trades directly to the market. Unlike vanilla options, you can not find exchange-traded CFDs. With CFDs, your broker is always your counterpart in the trade, which creates an inherent conflict of interest. This makes it extra important to pick a broker that is regulated and supervised by a financial authority known to enforce strong trader protection rules, since there will be no exchange looking out for you.

Regulation

Examples of countries where brokers are not allowed to sell binary options to retail traders, or where their ability to do so has been severely limited:

  • Israel

    • Israel was one of the first countries to pass a law banning binary options sales to retail clients. The Israeli law also prohibits Israeli firms from selling binary options to retail clients in other countries.

  • United Kingdom

    • The UK has implemented a permanent prohibition on the sale, marketing and distribution of binary options to retail clients.

  • European Union

The European Securities and Markets Authority (ESMA) imposed a temporary ban in 2018, to give the membership nations time to develop their own national retail binary options regulation. The temporary ban is no longer active, and retail binary options are instead regulated at the national level in each respective membership country. Many of the membership countries have banned brokers from selling binary options to retail clients.

  • Australia

The Australian Securities and Investments Commission (ASIC) banned binary options for retail clients via a product intervention order. It is technically not permanent, but there are no signs of it not being extended indefinitely.

  • Canada

In Canada, regulators have prohibited the sales of binary options shorter than 30 days to retail clients.

  • United States

Retail trading of binary options is only legal in the U.S. when done on a regulated exchange that is registered with the Commodity Futures Trading Commission (CFTC) (for commodity based contracts) or the Securities and Exchange Commission (SEC) (for securities based contracts).

Check this tracker if you cant find your country listed above.

Risk Management Suggestions If You’re Still Determined To Experiment With Binary Options

  • Cap total losses per session and per week. Stop trading the moment either limit hits. No exceptions.
  • Do not use expiries shorter than 30 minutes.
  • Never chase a loss by doubling size. Planned sizing only.
  • Track results by setup type for at least 50 trades before increasing amounts.
  • Withdraw profits instead of building your balance.
  • Assume bonus offers come with highly restrictive terms and conditions that will freeze your account from withdrawals until you have fulfilled them. Read the fine print. Stay away from bonuses with opaque rules.
  • Do not engage in gameyfied programs that encourages overtrading.
  • Learn how to spot high-pressure and manipulative sales tactics, and how to ignore your “account manager”.
  • Evaluate the broker carefully before you sign up, because the field is rife with scammers and low-quality brokers.

This article was last updated on: October 30, 2025