An interest rate swap in which a fixed rate is exchanged for a floating rate, with the latter being set at a specific basis spread over a reference rate such as LIBOR in case the reference rate stays within a specified range on the reset date. As such, the floating rate payer has to pay the floating rate along with the spread to the fixed rate payer. If the reference rate breaks out of the range, no the floating rate payer pays nothing to the fixed rate payer.

The binary swap is also referred to as a binary LIBOR swap.