In todays market, investors can often get confused with the various trading instruments and products available on the market, especially to retail investors. Options trading has been around for some time, its main focus in the beginning was on institutional investors and slowly this focus moved to more retail or casual investors. With the advent of Binary options, this has opened up the market to even more “casual” investors, investors wanting to take a short term contract that offers higher then average payout/dividends. It is important that those investors understand the difference between a Vanilla Option and a Binary Option.
The biggest feature of binary options is the fact that the payout is known in advance while with plain vanilla options the return will fluctuate during the life of the option. For the trader this means tha binary options are simples because they know in advance how much they stand to win or lose.
A vanilla option is the name given to a ‘normal’ type of option, with no special or particular features. As the name suggests, its a normal or standard option available on the JSE to most investors. Compare this to a Binary Option, in that Binaries are different when you consider the payout and pricing structure. Binaries are often much cheaper then their Vanilla counterparts. The reason for this is that in Binaries, the return is always known and is always fixed and ultimately this aspect controls the level of risk available on a Binary option. It is important that traders are familiar with the basic concept and ideas of options trading before starting to trade Binary Options online.