Was is a One-touch Binary Option? Definition & Examples


One Touch Binary Option Example (theory)

The condition of a One-Touch Option depends on whether the price of the fundamental asset will “touch” a defined target price over the option’s duration. It is a popular Binary Options type with only two outcomes: you lose the investment amount or earn a fixed return from the broker.

If the price ever reaches the target price, the contract is “in the money,” and the investor earns the set payoff. If the price does not reach the target price, the contract ends “out of the money,” and the investor’s money is lost.

Binary options include One-touch options, sometimes referred to as “Touch options.” Binary options are trading instruments that can result in one of two possible results: a predetermined payment if the option’s condition is achieved or no payment if the condition is not achieved. 

Most important facts:

How does a One-touch Binary Option work?

A One-touch option is a type of binary option in which the price of an underlying asset is determined by whether it hits a predefined target price during the option’s duration. Let us break down the major components and mechanics of a One-touch option to understand better the way it works:

Target price

Target Price One Touch Option

This is a specific price level established by the trader or options provider that the asset that is being traded must meet or exceed during the option’s lifetime. The target price in a One-touch option is important because it specifies the condition that must be achieved for the option to be “in the money.”

Expiry time

Expiry Time One Touch Option

The option has a set expiry date or time. At this moment, it depends on whether or not the target price was reached. When putting up the trade, the option holder must select an expiration time that can range from minutes to weeks or more, depending on the trading platform and the particular options.

› Start trading One-touch Options with the best broker Deriv!

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How to trade One-touch Binary Options

Here is a step-by-step explanation of how a One-touch option works:

One Touch Option Tutorial

1. Selection of underlying asset

The trader must choose a base asset (e.g., a stock, currency pair, commodity, or index) on which they want to trade using a One-touch option.

2. Setting target price

The trader selects the desired price at which the asset’s price is expected to touch or exceed during the option’s time period. Based on whether the trader expects a price gain or a fall, this target price can be either higher or lower than the current market price.

3. Choosing expiry time

The trader decides on the expiry time, which determines the duration of the option. It could be a matter of minutes, hours, days, or longer, depending on the trading platform used and the particular option contract.

4. Investment amount

Here, the trader specifies the amount they are willing to invest in the option. This amount is often referred to as the “stake” or “investment amount.”

5. Execution

The trader confirms the trade, and the One-touch option is executed. At this stage, the trader has taken a position on whether the price of the actual asset will touch the target price during the specified period of time.

6. Outcome

If the price reaches or exceeds the set target price at any moment before the option expires, the option is considered “in the money,” and the trader earns a fixed payment. If the target price is not reached at any point during the option’s time period, the option expires “out of the money,” and the trader loses all of their money.

› Start trading One-touch Options with the best broker Deriv!

(Risk warning: You capital can be at risk)

Example of a One-touch Binary Option trade:

Let’s walk through an example of a One-touch option to illustrate how it works:

One Touch Option example

Scenario:

Assume you are an FX trader who wants to invest in the EUR/USD currency pair. The current exchange rate is 1.1600, which means that one Euro is worth 1.1500 US dollars. You feel the Euro will gain value versus the US Dollar over a week’s time and wish to execute a One-touch option to profit from this move potentially.

Key details

  • Underlying asset: EUR/USD currency pair
  • Current exchange rate: 1.1600
  • Target price: 1.1700
  • Expiry time: One week from today
  • Investment amount: $200

Execution

You decide to purchase a One-touch option on the EUR/USD currency pair. You select the following parameters:

  • Target price: 1.1700 (higher than the current exchange rate, i.e., 1.1600)
  • Expiry time: 1 week from today
  • Investment amount: $200

The broker estimates a possible payout depending on the criteria you choose and offers you a 70% return if the selected option is “in the money.” It implies that if the EUR/USD exchange rate reaches or surpasses 1.1700 at any given time during the next seven days, you will be paid $140 in addition to your initial $200 investment.

The One-touch option is now active, and you may track the EUR/USD exchange rate all week.

› Start trading One-touch Options with the best broker Deriv!

(Risk warning: You capital can be at risk)

Outcome:

Throughout the week, there are several price fluctuations in the EUR/USD exchange rate. The exchange rate rises to 1.1710 on the sixth day, briefly hitting your chosen target price of 1.1700. This touch of the target price triggers the “in the money” condition.

If the exchange rate does not reach or exceed 1.1700 during the week, your One-touch option will expire “out of the money,” and you will lose your $200 investment.

Payout:

Your One-touch option is considered profitable, and you qualify for a payout because the EUR/USD exchange rate hit the specified price during the option’s duration. In this example, you earn a profit of $140, equivalent to 70% of your initial $200 investment, for a total return of $340.

Are there other Binary Options types?

Differen Binary Options types

Binary options come in various types, including:

Call/put options

The most basic type where you predict whether the price of the underlying asset will go up (call) or down (put).

Range options

You predict whether the price will remain within a specified price range.

High/low options

Similar to call/put options, where you predict if the price will be higher or lower than a specified level at the option’s expiry.

No-touch options

The opposite of One-touch options, where you bet that the price will not touch a specific level.

› Start trading One-touch Options with the best broker Deriv!

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Pros and cons of one-touch options explained:

Pros:

  • High returns
  • Defined risk
  • Diverse asset selection
  • Variety of timeframes

Cons:

  • High risk
  • Precise timing required
  • Complexity

Pros of one-touch options:

High returns

The possibility for high profits is one of the most prominent advantages of One-touch options. If the target price is met, traders can expect a large payment, frequently in the region of 60% to 500% or higher of their original investment. 

Defined risk

When traders buy a One-touch option, they are aware of the potential loss. The total loss is limited to the amount originally invested. The transparency in risk exposure enables traders to manage their capital better and make more educated decisions.

Diverse asset selection

One-touch options can be traded on a variety of underlying financial assets, including equities, commodities, currency pairings, and indexes. This variety allows traders to experiment across various marketplaces and assets.

Variety of timeframes

Traders can select from a range of expiry times, from a few minutes to weeks or even months. This adaptability allows traders to customize their transactions to their own market perspective and time horizons.

› Start trading One-touch Options with the best broker Deriv!

(Risk warning: You capital can be at risk)

Cons of one-touch options:

High risk

One-touch options are risky since they require the price of the actual asset to reach a certain objective within a specific time frame, which may prove challenging to anticipate. Failure to achieve the touch results in the trader’s complete loss.

Precise timing required

In One-touch options, timing is paramount. The asset needs to reach the target during the option’s time period; a near miss or a brief touch outside the timeframe is ruled out. Traders must keep a watchful eye on the market for suitable possibilities.

Complexity

One-touch options are complex for beginners. Grasping market dynamics, asset behavior, and factors leading to a price touch are vital, which might discourage novice traders.

What are the risks of using One-Touch Binary Options?

One-touch options, like any other financial product, carry risks that traders should be mindful of before using them in their trading strategies. The following are the most significant risks linked with One-touch options:

Failure to touch the target price

The most significant risk associated with One-touch options is that the fundamental asset’s price does not reach the chosen target during the option’s duration. 

High volatility risk

One-touch options are more volatile in the market. Price swings that are sudden and unforeseen can make it more difficult for the price to reach the target. High volatility might cause options to expire worthless.

Time sensitivity

One-touch options have set expiry durations, and the touch requirement must be fulfilled during that timeframe. If the trader underestimates or overestimates the time necessary for the asset’s price to reach the target, they risk losing their investment.

Lack of flexibility

The conditions and reward are preset and predetermined once a One-touch option is set. Traders lack the ability to change their positions or payouts during the option’s duration. 

Broker risk

It is crucial to select a broker who offers One-touch options. Not all brokers are trustworthy, and some may not offer reasonable conditions or prompt payouts. Traders should undertake extensive research to ensure that they are choosing a reputable broker with clear terms and conditions.

Potential for high-leverage

Some traders may be enticed to use unnecessary leverage with One-touch options in order to increase possible returns. While this can maximize earnings if the trade succeeds, it also increases possible losses dramatically.

› Start trading One-touch Options with the best broker Deriv!

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Which broker offers one-touch options?

Two brokers that offer One-touch options are Binary.com and Deriv. These brokers offer a variety of binary options and trading tools, as well as the ability to trade One-touch options. Traders who have an interest in this sort of binary option can look into these platforms to include One-touch options in their trading methods.

Choose One touch options on Deriv

Conclusion

One-touch options are a unique sort of binary option that can produce big rewards but also carry significant risks. Traders must correctly anticipate whether the price of the asset being traded will reach a particular target within a given timeframe. While they provide clear risks and rewards, it is critical to comprehend the complexities of these options as well as the possible challenges they have.

› Start trading One-touch Options with the best broker Deriv!

(Risk warning: You capital can be at risk)

Most asked questions about One-Touch Options:

What is a One Touch Binary Option?

It is an Option where traders have to speculate between two outcomes by predicting if the market prices will hit a target price before the trade expires. 

How much profit can I make if I trade the One Touch Option?

The profits depend on the investment in the trade, but it usually offers high profits, such as 300-500% if they win a trade. 

Are one-touch options suitable for beginners?

One-touch options are most suited for seasoned traders who understand price swings and risk management.

What is the typical payout for one-touch options?

Payouts differ depending on the broker and the choice of options; however, they may vary from 60% to 500% or more of the initial investment.

Can I close a one-touch option before its expiry?

Some brokers allow you to sell or terminate a One-touch option before it expires, but this may result in a lower payoff than if you wait until it expires. For further information, contact your broker.

About the author

Percival Knight
Percival Knight is an experienced Binary Options trader for more than ten years. Mainly, he trades 60-second trades at a very high hit rate. My favorite strategies is by using candlesticks and fake-breakouts

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