Quick answer
Binary option / binary contract: A binary contract pays either a fixed amount or nothing, depending on whether a condition is met at expiry; the CFTC glossary calls this a binary (or digital) option.
Also called: digital option, Yes/No contract
Explained, with an example
Example: a contract pays $1 if a hurricane makes landfall before a date and $0 otherwise [1]. Because the payout is fixed, the price is directly comparable to an Implied probability: a $0.25 Yes price equals decimal odds of 4.00 before fees. The CFTC warns that many off-exchange binary-option websites have been fraudulent, so the venue's regulatory status matters [2].
Formula
payoff = 1 if the event happens, else 0
price ≈ implied probability (before fees/spread)
decimal-odds equivalent = 1 / priceTry it: tools and tutorials
Frequently asked questions
What is a binary option / binary contract?
A binary contract pays either a fixed amount or nothing, depending on whether a condition is met at expiry; the CFTC glossary calls this a binary (or digital) option.
About this guide
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Author: Ken Lin · Corrections: if you spot an error, we review it and date-stamp the fix.
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Sources
- CFTC Glossary (binary option, DCM, order book, liquid market, market maker, settlement, wash trading, arbitrage, hedging) — U.S. CFTC, accessed 2 Nov 2026
- Fraud Advisory: Binary Options — U.S. CFTC, accessed 2 Nov 2026