The difference between Vanilla and Binary options

There is a big difference between Vanilla and Binary options. Binary options also known as digital options are similar to ordinary options in the sense that the payoff is based on the price of the underlying asset when the contract expires, however with a binary option only need to take a view on the anticipated direction of the underlying asset price and don't have to take magnitude into consideration. The main difference between a regular vanilla option and a digital option is the extent to how much a contract can potentially lose or gain. Binary options often referred to as FRO fixed rate options since the contract will have predetermined percentage of fixed rate of return, unlike traditional vanilla options which are much riskier since the potential gains are infinite of course risk can be managed by strategical stop loss orders.