What Is a ‘Binary Option’ and How Does It Differ from a Vanilla Option?

A binary option, also known as a digital or 'all-or-nothing' option, pays a fixed, predetermined amount if the underlying asset's price meets a specific condition (e.g. above the strike price) at expiration, and nothing if it doesn't. A vanilla option, in contrast, pays a variable amount equal to the difference between the underlying price and the strike price.

Binary options are simpler and have a fixed payout, while vanilla options have a payoff that is linear to the price movement.