There are two main types of binary options, namely the cash-or-nothing binary option and the asset-or-nothing binary option. The cash-or-nothing binary option will pay a fixed amount of cash if the option expires in-the-money while the asset-or-nothing will pay the value of the underlying security. Based on this, these options are binary in nature since there are only two possible outcomes. That is, you can either win a fixed amount of money or lose a fixed amount of money. Binary options are usually European-style options and they are also referred to as all-or-nothing options, digital options (more common in forex/interest rate markets), and Fixed Return Options (FROs) on the American Stock Exchange.Let us look at an example. A trader purchases a binary cash-or-nothing Call option on ABC Corps stock with a 100 investment and a predefined payout of 1,000. At the expiry of the trade, if the stock price is trading higher than the strike price of the asset, the 1,000 is received. If the stock price moves in the opposite direction and starts to decline, the 100 investment is lost.Binary option contracts have been available over-the-counter (OTC), which means that it was sold directly by the issuer to the buyer. They were generally considered exotic instruments and there was no liquid market for trading these instruments between their issuance and expiration. Binary options contracts were also often seen embedded in more complex option contracts.In 2007, the Options Clearing Corporation (OCC) proposed a rule change to allow binary options to be traded on the open market. In response, the Securities and Exchange Commission (SEC) approved listing cash-or-nothing binary options in 2008. In May 2008, the American Stock Exchange (AMEX) launched exchange-traded European cash-or-nothing binary options, and the Chicago Board Options Exchange (CBOE) followed in June 2008.AMEX offered binary options on some ETFs and on a few highly liquid equities such as Citigroup and Google. In 2005, AMEX and Donato A. Montanaro submitted a patent application for exchange-listed binary options using a volume-weighted settlement index. CBOE offered binary options on the SampP 500. Both the AMEX and CBOE listed options have values between 0 and 1, with a multiplier of 100, and tick size of 0.01, and are cash settled.By mid-2008, binary options brokers emerged offering traders the trading platform to trade online. This marked the beginning of a simplified version of exchange-traded binary options. Today, there are hundreds of brokers offering binary options trading and there are over 30 types of trading platforms to choose from with a wide selection of assets to trade in.However, it is important to note that if your contract expires out of the money it becomes worthless and you would lose 100 of your investment. In binary options trading, you are able to reduce the risk of trading if you see that your trade will end out of the money. From the Interactive Option trading platform, you can select to Rollover your trade and extend the expiry time so that it will have more time to end in the money.With binary options, it does not matter if Facebooks shares went up 1 or 40 above the strike price of your contract in the case that you purchased a Call option trade. You will get paid the same return either way. This differs to traditional option contracts where your return will depend entirely on the magnitude of the movement in the price of the stock.Here is an excellent example which will clearly display the difference between binary options Forex trading and traditional Forex trading. If a trader is trading the EUR/USD currency pair, and they decide to go long, they would put buy orders on the investments since the trader is expecting the value of the Euro to rise against the value of the Dollar. If the trader had placed the trade using a mini lot, which is equivalent to a 1 profit per every pip, and the traders target for the trade is totaled to 30 pips, the trader would then need to get at least a thousand dollars in his account to achieve the margin requirements which allows the trader some space for draw downs. If this traditional Forex trade is successful, the trader makes a 30 profit.In binary options trading on the other hand, in order for the trader to make a profit of 30, the Euro does not need to move up to 30 pips against the US Dollar. It simply needs to move up and the trader will be paid out the fixed rate of return up to 85. In traditional Forex market trading, you need to predetermine where the stock prices are moving to as well as the distance they will move making this a more difficult form of trading. Binary options Forex trading is therefore a lot easier to trade.Lets assume the value of EUR/USD is 1.47849, after analyzing the market carefully, the trader believes that the value of the Euro will trend up versus the USD. In this situation, the trader would purchase a Call option trade for this currency pair.Instead of putting an order for buy for the currency, the trader can simply purchase a 100 binary option Forex Call option for the EUR/USD with a one hour expiry time. If the traders forecast is correct and Euro price rises up, even a 0.001 pip on top of the original price, the trader will profit a little more than 75 return with the initial investment. The bottom line is that a 100 in binary options trading, could easily give a trader a profit of 75 within a short space of time. Another good thing is that traders can repeat this strategy several times a day thereby increasing their profits.The fact is, binary options are the perfect investment tool for both professional and beginner traders. It offers a wide variety of advantages and it gives you the opportunity to make money within a short amount of time with minimal investment and risk.Currently, there are more than 400 trading platforms or brokers. This was not the case in 2008 when binary options trading started since there were about 10 trading platforms.