A binary option is a financial option in which the payoff is either some fixed monetary amount or nothing at all. The two main types of binary options are the cash-or-nothing binary option and the asset-or-nothing binary option. The cash-or-nothing binary option pays some fixed amount of cash if the option expires in-the-money while the asset-or-nothing pays the value of the underlying security. They are also called all-or-nothing options, digital options (more common in forex/interest rate markets), and fixed return options (FROs) (on the American Stock Exchange).
While binary options theoretically play a role in asset pricing, they are prone to fraud and banned by regulators in many jurisdictions as a form of gambling. Many binary option outlets have been exposed as fraudulent. The U.S. FBI is investigating binary option scams throughout the world, and the Israeli police has tied the industry to criminal syndicates. The FBI estimates that the scammers steal US$10 billion annually worldwide. The use of the names of famous and respectable people such as Richard Branson to encourage people to buy fake “investments” is frequent and increasing. Articles published in the Times of Israel newspaper explain the fraud in detail, using the experience of former insiders such as a job-seeker recruited by a fake binary options broker, who was told to “leave [his] conscience at the door”. Following the articles published by the Times of Israel, Israel’s cabinet approved a ban on sale of binary options in June 2017, and a law banning the products was approved by the Knesset in October 2017.
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