A Comprehensive Guide to Binary Option Types and their Applicability
Binary options have escalated in popularity over the last few years. Every broker of binary options offers a broad range of trading options. New traders often get confused making the decision pertaining best binary options available for them. Investors usually find binary options attractive because of their apparent simplicity, as the investor is only required to guess whether something specific will or will not happen. Binary options trade takes place on platforms regulated by global regulatory agencies.
What are Binary Options?
Binary options are trade options in which the payoff is highly structured to be either a fixed amount of compensation in case the option expires in the money or nothing if the option expires out of money. The trade depicts estimates of underlying assets performance during a given time frame. These options are a simple way to trade price fluctuation in multiple global markets. The success of a binary choice entirely vests on a yes/no proposition, hence the name “binary”. A trader needs to know the rewards and risks of these often misunderstood trade instruments.
Types of Trades
There exists many different types of binary options and payment systems to trade. Each of these types creates a different dynamic for the trade and demands the trader to read and make a forecast of the asset price movement. Below are the types:
1. Classical Binary Options – Call/Put and High/Low Options
(i) Call/Put Binary Options
A Call/Put trade options deals with guessing the future price direction of an asset. This trade is very simple as the trader only needs to choose an asset to trade in, and predict where the underlying asset’s value is going. In Call/Put trade, if an asset is higher than the original price when the time expires, the trader receives profit indicated at the beginning of trade. If the asset is lower than the original price upon expiry time, trader loses the investment.
EXAMPLE – The 60-second binary option
This method expires in 60 seconds. The 60-second option is becoming increasingly popular due to its simplicity. If the value of an asset is clearly moving in one direction, the trader can take full advantage by conducting some concurrent trades to maximize profits. 60-second binary trade makes the platform ideal for those traders excited by prospects of quick rewards.
(ii) High/low Binary options
High/Low binary options ask the question of whether a set traded asset will eventually end up higher or lower than the previous price point by the expiry period. You can rely on market updates and events that could affect an asset price. Make use of different financial tools that are offered by the broker and study how an asset has been performing over both short and extended periods.
2. Options with Price Touch – One Touch and No Touch
A one touch binary option depends on a target or strike price. A trader will decide whether a set trade will “touch” or “not touch” the target price point within a given time. This type of bet is structured for traders to place a bet on an outcome that will predict if the asset to be traded will either touch a set price target or else not touch that price target before the expiry of the trade. Options under this category include the following;
(i) One Touch Option
Only two options are possible in this trade. – The barrier is reached, and the trader collects the full payment at the set time, or the barrier is not reached and thus the trader will lose the trade. This trade option is quite useful for traders with the belief that a traded asset price will exceed a certain level in the future, but are not sure that the higher price level is sustainable.
(ii) Double One Touch Option
This exotic option gives traders an agreed upon payment in case an underlying asset’s price either reach or surpass one of the two predetermined levels of barriers. A trader this type of trade option can make determinations on the position of both barriers, the expiry time and the set payout once the price rise above these barriers.
What to consider when trading
Binary options traders who search for a maximum investment on their returns choose the one touch binary options. The risks with this type of trade are significant, but the payout may go up to 500 percent. The trader must have a hint of the range of movement in the preferred direction. Price direction can be identified using technical and fundamental analysis. For the Touch trade, you should give a reasonable time to trade expiry. The No Touch price target will be set in the opposite direction.
3. Trading with Boundaries – Boundary Options
Also referred to as Range Option or Tunnel Option, boundary trade options place their targets within an upper and lower target price range. It asks questions of whether the trader believes the selected asset will close either “in” or “out” of the bounded price range.
How to trade
With this type of trade, a lower and upper boundary is defined. The rate over a particular time frame can either lie inside or outside this boundary. With a binary option, you bet whether the rate will stay between two boundaries and that there is no volatility or side ward movement.
Making trades outside the boundary
You can also make speculation on whether an asset’s price shall be outside a predetermined range or not. If a trader notices that the market is becoming very volatile, then the best way to profit from this option is to trade outside the boundaries. If the market is consolidating, it is a better idea to bet on the asset’s price to stay within a certain range during a set time.
4. Other Methods – Short Term Binary Options
Some brokers have other different methods available or allow traders to create their methods. Brokers give traders analytical tools that allow the traders to follow an assets history from the moment it started trading. Traders can see their placed options directly on the graph. This enables them to analyze their options and make real-time decisions on the way forward.
For short term binary options, the 60-seconds trade is very popular. However, the set interval time can vary from one broker to another. These intervals can be 2 minutes, 5 minutes and 15 minutes. The short-term trading has little room for error with small windows of volatility.