A binary option, also known as a digital option or an all-or-nothing option, is a financial instrument where the trader has two positions to decide between: will the value of an asset go up or will it go down over a set period of time? Depending on whether the trader is correct or not, the payout is a predetermined price or nothing.
For example, if a trader assumes a position that the value of gold will increase in a given period of time, and is correct, he/she wins a fixed payout. If the value of gold drops however, the trader loses the entire amount of the investment. It does not matter if the asset exceeds the original price, the strike price, by $1 or $100: the payout is the same.