An option is a derivative financial instrument based on any underlying asset (such as a stock, currency pair, oil, etc.).
A digital option is a non-standard option used to earn profits from price movements of these assets over a specified period of time.
A digital option, depending on the agreed terms and at a specific time determined by the parties, results in either a fixed income (the difference between the payout and the asset price) or a loss (equal to the value of the option).
Because the digital option is purchased in advance at a fixed price, both the potential profit and the possible loss are known before the trade takes place.
Another key feature of these trades is the time limit. Every option has an expiration time (expiry or closing time).
Regardless of how much the underlying asset’s price changes (whether it moves slightly or significantly), if the option ends in the money, a fixed payout is always made. Therefore, your risks are limited to the amount of the option itself.