A binary option is an option that has only two possible outcomes. Either the option expires in the money and results in a fixed compensation, or it expires out of the money and the trader loses his investment. The outcome of a binary option is based on a yes/no proposition.
A binary option, unlike an ordinary option, has a fixed expiration time and does not give the option holder any rights over the underlying asset. Most binary options markets are traded via online platforms that are not regulated by the U.S. government. The Securities and Exchange Commission issued an alert in 2013 regarding fraudulent binary options schemes following numerous complaints by investors.