Today there are many investment choices available and binary trading options are now on the tip of many tongues. As it can be a bit confusing here we will compare Binary and Vanilla Options. The two options have the same sort of connections such as assets from stocks, futures, foreign currencies just to mention a few. Binary options are much newer as an investment and much less of a risk. But Binary Options are gaining popularity with affiliate programs. You can discover more here about binary affiliate programs if you’re interested.
Both options are similar in that they have the same rules for payouts. These are always based on the price of the asset at the time of expiry. However, they have a range of differences that investors need to understand.
Potential gains and losses
The biggest difference is the potential for gains or losses or the intensity of the reward. In binary options the loss or profit that an investor incurs is a fixed amount. Binary options are also called fixed rate options because the fixed amount of reward relates to the contract value through the percentage of a fixed rate return. In Vanilla options the potential gains are infinite. They pose a higher risk to the investor.
There is also a difference in the payouts. The payouts for binary options are always static but for the vanilla option the payout is dynamic and based entirely on the underlying asset price. In Binary options there are two possible payouts while in Vanilla it’s never defined at the beginning.
Binary option will often take an hour or less to expire and you get the payout while Vanilla options will keep you waiting for a month and counting. In binary it’s either the option expires out of the money and you leave with nothing; very little money or your option expires in the money and you take home a profit of around 70 percent. In Vanilla the exact price determines payout. The end payout depends on the price of the asset in relation to its strike price.
Execution in binary options is only possible after the expiry period. For Vanilla options execution is at any time before the expiry period. The strike price and the underlying price are the main determinants and should be constant in order for the option to be executed in Vanilla. This is not the same in binary options since as price movement has no relevance but is dependent on the direction the asset price takes.
Binary is better off
It is evident that it is easier to adapt and understand Binary options than Vanilla options. All you need to do in Binary is establish the direction of the asset price. The risks also are minimized and there is a predetermined payoff and so lead to predetermined gains or losses.