Only five instruments will be under the spotlight under One Touch Binary Options, these being:
A one-touch option is a way of binary options trading where an investor simply needs to analyze whether the value of a commodity will reach the predetermined value or not. It offers a higher payout to traders of around 500%.
In this trading method, the “in the money” option is achieved even if the price reaches its predetermined value for once. After the “in the money” option is fulfilled, traders can either hold the option till it expires or sell it and gain a fixed profit.
Two possible outcomes of One-Touch Options
When you trade using the one-touch option, there are two possible outcomes you can expect.
- You predicted the value would touch the decided amount, and it does.
- You predicted the value would touch its decided amount, but it doesn’t. In this case, you will lose the invested amount.
Example of One-Touch Option
Here’s a quick example for understanding the one-touch option.
Suppose you are investing in gold with a payout of 100%. Its current value is $200, and its pre-established value is $250 with an expiry period of 90 days.
Even if the price moves up by 2% before expiry, you can assume that it will reach its predetermined value. So, if you choose the one-touch option, you will make a profit. However, you will lose the invested amount if the price decreases.
How does Touch Options work?
For touch options trading, remember that the predetermined value can be less than or greater than the spot price.
Once the price of an asset hits, i.e., touches the decided value before the expiry time, you will win. Even if the price increases or decreases from the fixed value, it doesn’t matter because it has already “touched” it.
But if your prediction is incorrect, you will end up losing the invested amount.
Difference between Touch and No Touch Option
The no-touch option is exactly the opposite of the touch option. In the no-touch option, a trader needs to analyze that the price of an asset will not reach its predetermined value.
Example of Touch Option
Here’s a simple example to understand the touch option.
Let’s assume that the price of a stock is $20. Its strike price is $40 with an expiry time of 30 minutes. Before the expiry ends, if the stock touches the strike price even once, you will win. But if not, you will lose.
Although the one-touch option offers a higher payout, it’s risky. So, it’s better to understand the binary trading inside out and keep an eye on the market trends before opting for the one-touch option.
The first three one-touch binary options are well recognized in the retail market and have been joined by Timeline and Onion as potentially being other strategies of interest to the retail client. These strategies have been separated from other barrier strategies, such as Knock-Out Binary Options and Knock-In Binary Options, as the ‘Outs’ and ‘Ins’ are likely to appeal to the professional trader and academic.
One-touch binary options and no-touch binary options are path-dependent, i.e. where the underlying price is at the expiry of the strategy is not critical, but the path the price took in getting there is. This is because with one touch binary options the underlying price has to trade only at or above (if a call) once, or at or below (if a put) once in order for the trade to have won or lost, and subsequently settle. The double no touch strategy has two strike prices pitched, one above and one below the current underlying price, and the strategy wins (for the buyer) if at expiry neither strike has been touched.
One-touch binary options have a practical use for volatility traders as the one touches provide the purest hedge available for those long/short volatility traders.
Finally, it should be noted that very often one touch binary options and no-touch strategies will be constrained by the need of the underlying to touch (or not) within a particular time zone window. Monitoring an underlying price 24 hours/day could become prohibitively expensive, lacking credibility in extremely ‘thin’ and illiquid markets, likely to lead to an abundance of ‘stewards’ (challenges to authorities on the basis of some or other claimed price print), and quite possibly (and likely) to lead to market manipulation and even fraud. Therefore any trader of one touch and no touches need to check out exactly the contract specifications as an unscrupulous one-touch provider could easily close out a speculator’s position with a ridiculously high or low tick in an illiquid market.
Find more articles in my Binary Options Glossary.