What is a binary option?

A binary option is a financial product where the parties involved in the transaction are assigned one of two outcomes based on whether the option expires in the money. Binary options depend on the outcome of a "yes or no" proposition, hence the name "binary."

What happens if a binary option expires?

Traders receive a payout if the binary option expires in the money and incur a loss if it expires out of the money. Binary options set a fixed payout and loss amount. Binary options don't allow traders to take a position in the underlying security. Most binary options trading occurs outside the United States.

Are binary options illegal?

Binary options within the U.S are traded via the Nadex and CBOE exchanges. Foreign companies soliciting U.S. residents to trade their form of binary options are usually operating illegally. 1 Binary options trading has a low barrier to entry, but just because something is simple doesn't mean it'll be easy to make money with.

What if the bid and ask on a binary option is 85?

In simple terms, if the bid and ask on a binary option is at 85 and 89, respectively, then traders on the buy-side are assuming a very high probability that the outcome of the binary option will be yes, and the option will expire worth $100 for buyers.