AZ Investor

What Every Investor Should Know

What is a Binary Option?
Binary options are securities in the form of options contracts that have a payout that depends on whether the underlying asset – for example, a company's stock or a stock index – increases or decreases in value. In such an all-or-nothing payout structure, investors are essentially betting on a stock price to increase or decrease with two possible outcomes when the contract expires: they either receive a pre-determined amount of money if the value of the asset increased/decreased over the fixed period, or no money at all. Unlike a traditional option contract, a binary option is not giving you the opportunity to buy an actual stock share, only the opportunity to bet whether its price will be above or below a certain amount at a designated time of day.

For example, you buy a "call" binary option contract for $30.00, betting that the price of a particular individual stock will be above $50.00 by a certain time of day. If at the designated time, the price of the stock is $50.01 or higher, your payout is a fixed sum of money, but if the price of the stock is $49.99 or lower, you lose your entire $30.00 investment. In reverse, you buy a "put" binary options contract for $30.00, betting that the price of particular individual stock will be below $50.00 at a particular time of day. If at the designated time, the price of the stock is $49.99 or lower, your payout is a fixed sum of money, but if the price rises to $50.01 or higher, you lose your entire $30.00 investment.

How to Ask and Check Before You Invest

Keep in mind that while thousands of companies promote binary options trading in the U.S., only a few are currently authorized to offer and sell by the CFTC. Contacting a securities or commodities regulators to verify registration information and backgrounds can help you make an informed decision.

To make certain the trading platform is registered with the U.S. Securities and Exchange Commission (SEC), visit the SEC's EDGAR database at https://www.sec.gov/edgar/searchedgar/companysearch.html.

Check the registration status and background of any firm or financial professional database of the National Futures Association (NFA): https//www.nfa.futures.org/basicnet/

Next, check out the CFTC's RED List, which contains the names of unregistered foreign entities that the CFTC has reason to believe are soliciting and accepting funds from U.S. investors at a retail level: https://smartcheck.cftc.gov/redlist/.

Also, you can check the securities registration status and background of the company and salesperson through the Investigator on Duty at the Arizona Corporation Commission's Securities Division by email at info@azinvestor.gov or by telephone at 602-542-0662 or toll free in Arizona, 1-866-VERIFY-9 (837-4399).

Read more in a NASAA Investor Alert on Binary Options or visit the Investment Fraud Prevention Center.

The information provided on this website is not comprehensive, is not offered as legal or investment advice, and is not a substitute for competent legal or financial counsel. The Securities Division provides this information to give you an overview of the topics discussed. You should not rely on the accuracy of this information, but should carefully review all applicable statutes and regulations with the assistance of legal counsel.