What type of payoff structure do binary options have?

Binary options have a payoff structure characterized by a fixed payout based on whether a specific outcome occurs. This means that binary options operate on a simple yes-or-no proposition regarding the future price of an asset. If the outcome aligns with the condition set by the option (for instance, if the asset is above a certain price at expiration), the holder receives a predetermined payout. Conversely, if the outcome does not meet the specified condition, the payoff is typically zero.

This fixed outcome provides simplicity and clarity for traders, making binary options appealing for those looking to speculate or hedge based on specific market conditions without the complexities of other investment vehicles that may have continuous or variable payout structures. The certainty of knowing the exact payout in advance helps traders make informed decisions when engaging with this type of financial instrument.