It is from the computer language of binaries (0 and 1 are the binary digits) that binary options and digital options have derived their names. There are basically one and the same. The similarity lies in the fact that in binary options trading there are only two possible outcomes like 0 and 1.

Binary options or Digital options are those whose payouts are fixed after the underlying stock exceeds the strike price or the predetermined threshold. The payout value is determined at the very onset of the contract and never depends on the magnitude by which the price of the underlying asset moves. Therefore, whether you are in the money by $1 or $4, it doesn’t really matter because the amount that you receive will be the same. Digital options is just another of binary options and is a relatively simple method of investing. Thus, the investor either gets a fixed amount or loses the entire investment if he is not in-the-money.

The payout of digital options/binary options always remains the same no matter how deep in-the-money the investment closes after expiry time. A simple example will help you understand the concept better. Let’s say you buy digital options worth $40 and you expect a return of say $500 if the call closes at $40 or more. Even if the option closes at $4000, you will get only the predetermined amount or payout and it does not change. For your information, the moment you enter a binary options contract, along with the payout, the closing date is also determined and that is also not subject to change.

Depending on the current value of your investment you are paid or you aren’t when the contract expires. The best part about digital/binary options is that you, as an investor, do not have to continuously follow your investment through the entire process and make complex investment decisions. This is a big advantage of binary options over traditional options. Here, you just wait for the option to expire and collect your money. Well, has it ever crossed your mind from where a digital option got its name?

Remember the digital language of computers also known as the binary language? It is from there that these options have got their names. The binary digits are 0 and 1. Similarly, in case of binary options trading, there are only two possible outcomes - $0 or a fixed payout that is $1. It is because of this reason that these options are also called binary options and digital options. Variety of assets are traded with digital options like US dollars for British pounds, trading stocks at NASDAQ, commodities trading in energies, grains and metals etc. Start trading in these assets first; then get into the complex modes of binary trading.