Providing access to stocks, indices, commodities and foreign exchange, a high-low binary option is also called a fixed-return option. This is because the option has an expiry date/time and also what is called a strike price. If a trader wagers correctly on the markets direction and the price at the time of expiry is on the correct side of the strike price, the trader is paid a fixed return regardless of how much the instrument moved. A trader who wagers incorrectly on the markets direction loses her/his investment.If a trader believes the market is rising, she/he would purchase a call. If the trader believes the market is falling, she/he would buy a put. For a call to make money, the price must be above the strike price at the expiry time. For a put to make money, the price must be below the strike price at the expiry time. The strike price, expiry, payout and risk are all disclosed at the trades outset. For most high-low binary options outside the U.S., the strike price is the current price or rate of the underlying financial product, such as the SampP 500 index, EUR/USD currency pair or a particular stock. Therefore, the trader is wagering whether the future price at expiry will be higher or lower than the current price.Binary options outside the U.S. typically have a fixed payout and risk, and are offered by individual brokers, not on an exchange. These brokers make their money from the percentage discrepancy between what they pay out on winning trades and what they collect from losing trades. While there are exceptions, these binary options are meant to be held until expiry in an all or nothing payout structure. Most foreign binary options brokers are not legally allowed to solicit U.S. residents for trading purposes, unless that broker is registered with a U.S. regulatory body such as the SEC or Commodities Futures Trading Commission.Starting in 2008, some options exchanges such as the Chicago Board Options Exchange (CBOE) began listing binary options for U.S. residents. The SEC regulates the CBOE, which offers investors increased protection compared to over-the-counter markets. Nadex is also a binary options exchange in the U.S., subject to oversight by the CFTC. These options can be traded at any time at a rate based on market forces. The rate fluctuates between one and 100 based on the probability of an option finishing in or out of the money. At all times there is full transparency, so a trader can exit with the profit or loss they see on their screen in each moment. They can also enter at any time as the rate fluctuates, thus being able to make trades based on varying risk-to-reward scenarios. The maximum gain and loss is still known if the trader decides to hold until expiry. Since these options trade through an exchange, each trade requires a willing buyer and seller. The exchanges make money from an exchange fee - to match buyers and sellers - and not from a binary options trade loser.Assume your analysis indicates that the SampP 500 is going to rally for the rest of the afternoon, although youre not sure by how much. You decide to buy a (binary) call option on the SampP 500 index. Suppose the index is currently at 1,800, so by buying a call option youre wagering the price at expiry will be above 1,800. Since binary options are available on all sorts of time frames - from minutes to months away - you choose an expiry time (or date) that aligns with your analysis. You choose an option with an 1,800 strike price that expires 30 minutes from now. The option pays you 70 if the SampP 500 is above 1,800 at expiry (30 minutes from now) if the SampP 500 is below 1,800 in 30 minutes, youll lose your investment.Continuing with the example, you invest 100 in the call that expires in 30 minutes. The SampP 500 price at expiry determines whether you make or lose money. The price at expiry may be the last quoted price, or the (bidask)/2. Each broker specifies their own expiry price rules.In this case, assume the last quote on the SampP 500 before expiry was 1,802. Therefore, you make a 70 profit (or 70 of 100) and maintain your original 100 investment. Had the price finished below 1,800, you would lose your 100 investment. If the price had expired exactly on the strike price, it is common for the trader to receive her/his money back with no profit or loss, although each broker may have different rules as it is an over-the-counter (OTC) market. The broker transfers profits and losses into and out of the traders account automatically.The example above is for a typical high-low binary option - the most common type of binary option - outside the U.S. International brokers will typically offer several other types of binaries as well. These include one touch binary options, where the price only needs to touch a specified target level once before expiry for the trader to make money. There is a target above and below the current price, so traders can pick which target they believe will be hit before expiry.Binary option innovation has led to options that offer 50 to 500 fixed payouts. This allows traders to potentially make more on a trade than they lose - a better reward:risk ratio - though if an option is offering a 500 payout, it is likely structured in such a way that the probability of winning that payout is quite low.Some foreign brokers allow traders to exit trades before the binary option expires, but most do not. Exiting a trade before expiry typically results in a lower payout (specified by broker) or small loss, but the trader wont lose his or her entire investment.There is an upside to these trading instruments, but it requires some perspective. A major advantage is that the risk and reward are known. It does not matter how much the market moves in favor or against the trader. There are only two outcomes: win a fixed amount or lose a fixed amount. Also, there are generally no fees, such as commissions, with these trading instruments (brokers may vary). The options are simple to use, and there is only one decision to make: Is the underlying asset going up or down There are also no liquidity concerns, because the trader never actually owns the underlying asset, and therefore brokers can offer innumerable strike prices and expiration times/dates, which is attractive to a trader.