Both the Binary Options and the Vanilla Options are the most common types of trading vehicles available in the financial markets that most of the experienced traders are aware of.
Vanilla Option has only one Standard Result
Binary options are also called digital options and have two outcomes, whereas a Vanilla Option has only one standard result. This is one major difference between both types of options. For binary options, the payouts are always predetermined, and at the end of the expiry period the trader will be paid a fixed payout depending on the price movements of the assets and the correctness of the estimation made by the trader. On the other hand, vanilla option has a strike price with standard features and a fixed due date.
The Payout is Always Fixed
So, in case of Binary Options, the payout is always fixed and is finalized when an investor chooses a specific asset to invest in, whereas the Vanilla Options offer variable payouts. In Binary Options, the trader earns the profit when the trade concludes “in the money” and the profits are fixed originally while entering into the trade. On the other hand in vanilla option, a trader will get the amount which would be bigger than the strike price.
Both the options types can be different from their trading pattern too. In case of trading binary options, a trader can take the inflation also into considerations, as the trading will include both the consumer and the producer price indices. But in case of the vanilla option, the case will be different and no continuous price will be available to a trader.
Out of Money Rewards
The “out of money” feature is another essential aspect that could help understand the difference between both the types of options. If a trader prefers to purchase a vanilla option with out of money, it should be kept in mind that the strike price and the expiry period should be the same. In such a case, the trader will get an out of money at a cheaper rate.
The difference of out of money rewards in both the cases could be due to the fact that in binary options, the payout is predetermined while vanilla option, the payout is not fixed. Moreover, in binary options, the options can very quickly shift from out of money to in the money, whereas under vanilla option, the case could be the other way.
The Worth of an Investment May Rise
In case of binary options, the worth of an investment may rise with the expiry time approaching nearer. While under vanilla options, you may perhaps lose money, with the passing time if the prices in the market drop significantly. Thus, in many cases trading in binary options would be somehow opposite to the trading under vanilla options.