Whereas with traditional vanilla options, the price has to move sufficiently before an investor is able to make any substantial profit. Like vanilla options, binary options come with an expiry time and a strike price. However, this is where the similarities between the 2 different types of options end.Most of us are aware of the fact that binary options were first introduced to the general public when the Securities and Exchange Commission (SEC) approved the listing of binary options on the American Stock Exchange (AMEX) and Chicago Board Options Exchange (CBOE) in 2008. The fact is, the concept of binary options as a financial instrument is nothing new. It has been used extensively by the insurance and financial industries as a method of reassigning risk for more than a few decades.The insurance industry has over the last few decades used an instrument called industry loss warranties (ILWs) to transfer catastrophe risk from the insurance companies to the reinsurance companies. By spreading the risk, insurance companies are able to provide coverage at a lower rate than would otherwise be impossible for them to do had they assumed all the insurance risks themselves.Also the interbank spot forex market has traded in binary options for many years now. While they may be more complex to construct than the type of binary options which retail traders are familiar with, these sophisticated binary instruments essentially perform the same task of risk transference by helping to eliminate exchange rate risk for the international trade sector. Likewise, the global crude oil industry and base metal markets have also been using binary options in the same way to eliminate wild price swings in the energy and manufacturing sectors.When trading binary options, all an investor has to do is to determine which way the price of an underlying asset will move. If he thinks that the market is moving in an uptrend direction, he will have to purchase a Call option to cover his position. On the other hand, if he thinks that the price will be moving in a downtrend direction, he will purchase a Put option.To close in the money, all the investor has to do is to ensure that the expiry price will close above or below the strike price respectively. It doesnrsquot matter by how much the price moves as the return is already determined at the onset of the trade execution.While the distinguishing characteristics of binary options may be their Yes/No proposition and the fixed returns that they offer, it is still possible to have different variations of this theme by varying the expiry conditions and payout offers. Examples of these different variations of binary options contracts that are being traded today include:U.S binary options are traded through exchanges which earn a fee to match a willing seller with a willing buyer. European style binary options on the other hand are not traded through exchanges. The brokers of these European style binary options earn from the discrepancy between the winning trades and losing trades made by traders trading through the brokers.This is the simplest of all the binary options that are offered by most brokers today. You only have to decide if the current market price will end up higher or lower than the strike price. If you think it will be higher, you will purchase a Call option. The reverse is true for a Put option.For One Touch Options, you have to determine if the current market price will ldquotouch or go beyond the strike price before the option expires. If you think the price will touch or go beyond the strike price, you will purchase a Call (Up) option. However If you think that the current market will not touch or go beyond the strike price, you will purchase a Put (Down) option.Range options work in a similar fashion to One Touch options. Here, an investor will decide if the current price will stay in a specified price range or go beyond this range or stay within this price range before the option expires. You will buy an ldquoOut option if you think the former scenario is true and an ldquoIn option for the latter scenario.When binary options were first available for trading to the general public in 2008, the coverage of the financial markets were rather limited and confined largely to the market indices sector. Today, it is a different story entirely. Nowadays, an investor can trade in binary options for forex pairs, commodities, stocks and market indices. Some selected binary brokers even go to the extent of offering binary options for the bond market and the crypto currency Bitcoin. Regardless of your preferences, the choice of underlying assets that are available is usually more than sufficient to meet any traderrsquos needs. Over the past few years, Binary Options have developed to become one of the most popular ways to trade the financial markets. The growth in this popularity can largely be attributed to the benefits which investors can derive from trading binary options as compared to other forms of financial instruments. Examples of these benefits include:Because the returns are not dependent on the quantum of the price movements, a trader can trade with the peace of mind that his trading risk is only limited to the amount that he invested and his profit is assured so long as prices move in the direction that he predicted.Binary options traders know beforehand how much it will cost them to execute a trade and how much they will stand to gain in return. Furthermore they can be certain that the price offered by the binary options broker is the price that their trade will be executed at. This is not the case when you trade in the spot forex market or the stock market, as the trades in these markets will only be filed at the best possible price and not necessarily the price that the trader actually wants. In addition, there is also no guarantee that a stop loss order will be fulfilled at the level stipulated.Due to the fact that binary options trading has only been introduced to the mainstream financial markets during the last few years, the regulatory framework for regulating binary trading has not been fully developed yet. Currently only a few countries around the world have the legal framework to regulate binary options trading.In Europe, binary options are formally recognized as financial instruments in Cyprus and Malta.