Binary options, like ordinary options, have a premium, a strike price, and an expiration date.
The distinction is that with binary options, the trader chooses the option’s “premium” amount (conventional options are usually selected by the market), and the expiration dates are substantially shorter.
Let’s take a look at how binary options transactions work before we get into the ka-ching.
In essence, regardless of how far the market goes beyond the strike price or whether the contract’s criteria are met, you will receive a predetermined fixed profit.
Do you want to trade in binary options but don’t know how to do that? Well, you will be amazed to know that there are seven types of options to choose from. Want to learn more about them? Then check out this guide on- Types of Binary Options Trading right now!
What are the different types of Binary Options?
What you will read in this Post
There was only one sort of trade available when binary options initially became popular a few years ago: High/Low, Up/Down, or Call/Put. All of these expressions have the same meaning.
Binary options, as the name implies, get their name from the structure of these trades, which have two alternative outcomes. However, since the rise in popularity of binary options, a variety of other sorts of transactions have become available on binary options websites, and more are appearing all the time.
When you open a binary options account, what are the different types of options you can trade?
- One Touch/No Touch
- Short Term/60 Seconds
- Long-term planning
Let’s take a closer look at each of these trades. Binary options are rapidly evolving into a thrilling world of possibilities.
The High/Low trade is the most basic sort of binary options transaction. In High/Low trade a trader needs to assess an asset which could either be a currency, index, stock or a commodity. The trader has to analyze and respond to a question-
“Will asset A will trade at a higher or lower price than the currency time and will it expire at time Y?”
Binary options are a “one or the other” type of option.
If you believe the answer is “higher,” simply select “High” (or “Up” or “Call”) on your platform. If you believe the answer is “lower,” select “Low” (or “Down” or “Put”) on your platform.
Option Builder provides users a more flexible form of High/Low trading experience that can bid in the stocks of many big companies. It also implies that expiration time can change or be set by the trader.
Expiration times vary, however they often span from five to fifteen minutes to several hours later on the same day for High/Low bets.
Earlier, most of the traders used to invest in intra-day trading. However, nowadays, people are more interested in Long term trading.
Here you win a trade when your claim turns out true, and the asset is trading at the level you specified before the clock ticks out. If you fail to do so, you will lose the trade.
A demonstration of how the High/Low choices operate
Let’s imagine you decide to trade the EUR/GBP currency pair with a $100 investment. You can see that the current payout is 75%, and the trade will expire in one hour.
All you have to do now is forecast whether the EUR/GBP rate will rise (call trade) or fall (put trade).
Let’s say you believe the EUR will increase versus the GBP in the next hour, implying that the rate will rise. At 1 pm, you place a 0.8933 Call trade on the currency market.
At 2 pm, the EUR/GBP rate had climbed to 0.8940, indicating that your guess was correct and a trader completed the trade successfully. You get $175 (made up of your $100 investment plus a $75 incentive) because the payout on this deal is 75%.
Traders who chose the wrong Put trade under this situation would lose their entire $100 investment. In order for a Put trade to succeed and a Call trade to fail, the price at expiry time must be lower than the strike price, which is 0.8933.
Now you see how the High/Low trade works. It’s that simple.
#2 One-Touch vs. No-Touch
One-Touch trading differs from High/Low trading in a few ways. When you’re trading One Touch, you’re looking at a particular asset and asking a separate inquiry.
“Will X asset hit Y trigger point by Z expiry time?” says the investor.
You can find the trigger point at any point on the graph. The larger your potential payment if you win, the further distant the trigger point is from the present price level. Because a point close by is easier to reach, it will pay less because the risk is reduced.
You win your trade and the reward if you predict that the asset will touch the trigger point and it does so inside the expiry period. If you’re wrong, you’ll lose your money.
One of the most exciting aspects of One Touch trades is that they often have substantially greater payouts. This is owing to the fact that they carry a higher level of risk.
However, while the average payment for High/Low trades may be close to 85%, your broker may offer you payouts of up to 300 percent for One Touch transactions.
There are further variations on the One Touch trade, albeit they are not widely available.
No Touch trades are similar to One Touch trades, with the exception that you’re betting on the price not reaching the trigger point. There are also multiple-valued Double One Touch and Double No Touch deals.
When the price of the underlying asset crosses a predefined barrier, commonly known as a “trigger,” this type of option pays out a profit to the holder.
The trader will receive his compensation after the trigger level has been met. This option is favored when an investor is confident that the asset’s price will make a strong move in a specific direction and hit the trigger value, regardless of whether the price spike will be sustainable or the market will retrace.
Although the option must only touch the trigger level once to be considered “in-the-money,” the one-touch option is often riskier than normal binary options. It gives a greater payout, which can exceed 500 percent with some brokers.
In addition, these options are typically available for purchase over the weekend, with the payout condition being that the trigger level is reached within the following working week.
In contrast to one-touch options, the no-touch option works in the opposite direction. You’re betting that the underlying asset won’t reach a specific price level.
Thus you and your broker bid for a price level above or below the current price and predict whether the price will touch the level before the time runs out as you did in the one-touch option.
If it hits it even once, the option becomes “out-of-the-money” right away, and vice versa.
Talking about returns, if we consider the time and trigger value, these options can yield up to 500 percent of returns because of the high-risk trade involved.
If the parameters are more difficult to meet, both touch and no-touch alternatives give a more significant payment.
If the trigger is further away from the spot price, one-touch options will pay out more money. If gold is now trading at $1 300 per troy ounce, a one-touch option with a $1 350 trigger will yield a larger return than one with a $1 325 trigger.
In contrast, the closer the trigger is, the bigger the return on no-touch binary options.
Therefore, a $1325 bid will get you more money than a $1350 bid as the probability of hitting the closer target are high enough. Not only that, the risk of becoming “out-of-the-money” gets higher.
The logic for double one-touch options is the same as for one-touch options.
But, unlike one-touch, Double one-touch involves two triggers for each side of the spot price. If any of the two triggers are passed by the price of the underlying assets, then your option will become “in-the-money.”
If gold is now trading at $1 300 and you or your broker have placed the upper and lower triggers at $1 350 and $1 250, your option will be lucrative if gold rises to $1350 or falls to $1 250. If the price does not touch any of the two triggers before the expiration period, it will be considered “out-of-the-money.”
As a result, double no-touch options are appropriate for market consolidation situations. The trader is confident that the price will accelerate and break out shortly but is unsure in which direction.
Double No Touch
When compared to the double-touch alternatives, double no-touch options follow the exact opposite approach.
It’s similar to double one-touch, but unlike that, double no-touch involves two triggers for each side of the spot price. If any of the two triggers aren’t passed by the price of the underlying assets, then your option will become “in-the-money.”
If one of them is hit, the option will become “out-of-the-money,” and you will lose your money.
As a result, traders prefer to invest in such an instrument when they expect the market to consolidate in a narrow trading range, which frequently occurs following a buy or sell climax (a strong price spike).
The following is an illustration of how Touch options function.
Your broker can only offer a few different types of touch options. We will just cover the basic types in this article, from which various variations are derived.
Let’s say the underlying asset is the EUR/GBP currency pair, which is now trading at a rate of 0.8934. When you choose an asset to trade, the broker displays the following numbers automatically:
1) A price limit of 0.8939
2) A payout of 90% of your deposit
3) Two trading options: ‘Touch’ or ‘No Touch.’
Assume you believe the item has the ability to hit this predefined higher price threshold within one hour of the expiry time.
Around 3pm, you use your 100 USD deposit to place a ‘Touch’ trade order.
In no time you will see that the price of the EUR/GBP currency pair went through the price level of 0.8939 soon after you place the order of Touch trade. After this option trade expires, you will get a signal depicting that your trade was fruitful leading to a payout of USD 190, where $90will be the bonus.
Even if the expiration price was less (0.8931) than the strike price, the important criteria for a successful trade was however satisfied.
Boundary trading can be referred to by other names like channel trading, range trades, and entails. The concept of a channel, in which price ranges are separated, is one part of technical analysis that you will master when learning how to trade.
Support and resistance determine the upper and lower bounds in this type of trading. Price will test these limitations and stay within them for the most part, though it will eventually break through and enter a new range.
You’re effectively making a Double No Touch trade with a Boundary trade when you’re implying that the price will remain within a specific range defined by two trigger points.
You win if the price maintains within the specified range throughout the trade, or you lose if it goes outside that range (touches either trigger point) within the expiration period.
The beauty of boundary trading is that it allows you to earn even in flat markets with pretty consistent prices.
Because most trading situations only allow you to profit from price swings, this is a one-of-a-kind chance in the binary options arena that you won’t find anywhere else.
Range trading is only offered by a small number of binary options brokers, so if this is something that interests you, you’ll need to hunt for a broker that does.
An illustration of how the Boundary option works.
Using the example below, we can see that the currency pair EUR/GBP is flat on the market, and the broker is offering a 95 percent payment that will expire at 2:45 pm. Let’s pretend you decide to trade this as a Range option after evaluating the price range available (always created by the broker).
The maximum price boundary is 0.8940
The lowest price limit is 0.8930.
The asset’s current price of 0.8935 is in the middle of the price range, defined by top and bottom price levels. Along with the price range, there are two trading options: IN or OUT.
When EUR/GBP trades at 0.8935 at 1:45 pm, you deposit USD 100 to trade IN. The underlying asset remains pretty flat for the following hour and does not depart from the price range. Because the price remains within the set range, you make USD 195 on the IN trade in less than an hour (your deposit of $100 plus a reward of $95).
#4 Short Term/60 Seconds
In recent months, 60-second trades have grown quite popular. They’re currently just as popular as High/Low and One-Touch transactions.
They are currently available from almost every binary options provider. These trades function in the same way as the normal High/Low trades I mentioned earlier. However, the activity only lasts one minute. 60 Second transactions usually have a one-minute expiry duration.
Nothing beats being in a trade with the potential to make or lose a lot of money in a short period. Short-term transactions are also available from several binary options firms. Options with a 60-second expiry period may be available, as well as options with a two- or three-minute expiry time.
A word of caution: these ultra-rapid alternatives are not suitable for everyone. If you are competent at working with small timeframes and responding quickly, you can earn a lot of money this way, but most traders who get into these trades without preparation and testing will find that their money is gone in 60 seconds.
Make sure this form of trading is good for you by doing some demo testing first!
#5 Long-term Trading
Long-term options are one of the fascinating forms of transactions that I’ve only recently discovered binary options providers offering.
These are the opposites of the 60-second selections. Instead of being built to last a few hours, days, weeks, or even months, they are designed to last days, weeks, or even months. There are several expiry times to choose from.
“However, I don’t want to sit in a trade for weeks waiting to see if I’ve won or lost. “Why would I do that when I can make money in 60 seconds?” says the narrator.
This is a common reaction among binary options newcomers, and it is one of the reasons why this style of trading has not taken off.
Nonetheless, you’ll see that more and more brokers are offering lengthier expiry durations. So, why would you want to be stuck in a deal for weeks or months? Long-term trading isn’t exactly a fast-paced environment.
The unpleasant reality is that the vast majority of traders that begin trading in short periods will fail. Outside of binary options trading, traders are significantly more likely, to begin with, trades that they will hold for several days.
For a few reasons, learning these slightly longer transactions is easier.
To begin with, it’s easier to repair mistakes in your trade when you’re not tempted to lose all of your money in one sitting.
Second, data at these levels are more consistent, making it easier to make profitable trades, ideal for technical analysts and price action traders.
Another reason you should choose Long Term trading is because not everyone has the skill and knowledge to do Short Term trading. Many traders will be happier and more successful if they deal over days or weeks. Others will do best with long-term position trades that last weeks or months.
Ladder trades are a relatively new invention as well. On binary options websites, you’ll find some of the more intricate sorts of deals.
They’ve built up an “interval” with a variety of strike prices. Ladder trading gives you a chance to benefit in part from trades that are anticipated to face considerable support and resistance. Along the route, there are various distinct expiry prices. Both the striking prices and the expiry times are yours to choose from.
A Ladder trade is similar to a High/Low or One Touch trade in terms of execution. You’re still essentially looking at an asset and predicting how it will move and in what time frame.
Because you’re breaking down the trade, you can have partial gains and losses. This is a trade for experienced traders, and learning how to execute it profitably will likely take some time.
Nowadays, Pair trading is one of the most followed trends in the trading industry. StockPair was the first broker platform that introduced this form of trading.
Soon after getting introduced, Pair trading got the attention of many new traders. Even the old brokers started getting inclined towards it and followed suit.
Today, a lot of binary options provide this form of trading. In this, one can bid on any virtual market condition, be it uptrend, downtrend, or sideways movement.
To figure out which method is best for you, we advise you not to trade with real money. You must be aware from our previous articles that trading on binary options involves a lot of risks. Therefore, you should always start with a demo account and trade using it to determine which binary option is for you.