There are several types of binary options which you need to take into account. If you are a beginner, but seriously thinking of trying binary options, you will need to introduce yourself to all of them. The primary and the main difference with all of them is the payout which each one of them gives.
There are three main types of binary options, the “up/down” options, “touch” options and “range” options. The most basic ones are the “up/down” options which we have covered in the example of the previous lesson. Most people use this type where brokers give you an approximate percentage of 70 % to 75% per winning trade. “Touch” and “range” options are a bit more difficult than that, but they result in a higher payout. When using these types of binary options you stand to be offered an average percent of 200% to even 750%, which can make you a lot of money if you play it right. Needless to say that the other two types are for more experienced users but you are welcomed to try them.
Here we shall give you an overview about all of the given types of binary options to get you well acquainted with the binary options world and give you more chances to win big and different opportunities.
Up/Down options are the most common and the most simple binary trade options to use. They can also be called over/under options, high/low options or even above/below options, but the point is the same with all of them.
When trading with up/down options you only need to guess which way will the asset you have chosen will go, up or down. If you are thinking that the price of a certain asset will rise in the given period of time, you will then be prompted to buy or choosing the CALL option. On the other hand, if you are convinced that the price of the asset will be lower, then you will need to sell or choose the PUT option. If you are correct about your choice after the given time period and win you will be in-the-money, or if the alternative is that you make a bad choice then you are out-of-the-money. We have already given an example of a up/down option trade in the previous lesson with the EUR/USD currency as our asset, so you have a basic understanding on how they work.
Up/down options will earn you a hefty amount of money if you play your cards right, but the payout is generally low. The brokers offer profits of 70% to 80% approximately per winning trade. Up/down options can expire in a matter of minutes or in a few days. Some are even offered in mere seconds. The point is that you cannot get rich quickly and that is why these options are limited. But with every risk there are consequences, so be careful and manage your risks before getting dragged into the binary option trade world.
There are two different types of touch options, One touch and No touch options. One Touch options require that during the expiration period the market touches the given strike price at least once. It does not have to end up above or below the strike price in order for you to be in-the-money. It is enough that the market reaches the strike price only one time during the period which the broker gives. On the other hand, No touch options are a complete opposite. In order for you to be in-the-money in this case, it is required that the market does not touch the strike price during the time period. You will only win if the market stays away from the strike price and does not touch it not even once during the period given by the broker.
The time periods for touch options are much longer than with the up/down options and are usually held during the whole week. For example, some broker may start the option when the market closes on Friday and offers an expiration period for the whole week where you will have to wait till next Friday. The payout for your time of waiting is immense because to brokers offer around 250% to 500% profits on your initial investment.
Let’s explain it better using an example. Let say that the asset we are trading with is again the EUR/USD balance. The market has closed on Friday at 1.3100 and during the course of the weekend binary option brokers offers a call option where you profit if the market reaches the 1.3450 and a put option where the market needs to reach as low as 1.2750 at least once during the expiration period. The period that you need to wait is a week and in order to win the market needs to reach the strike price for the put or the call option, whichever of the two you have chosen, in order to win. For the sake of the example we will chose the call option.
A week has passed and the result is as follows. The EUR/USD balance went as high as 1.3600 and closed at 1.3050, meaning that the strike price was reached during the course of the given expiration period and you are in-the-money. It does not matter if the market closed below the strike price, the only thing it matters is that at one point it was reached and that the market “touch” the strike price. The same thing would have gone when playing the put option as well. But on the other hand let’s say that the market did not reached the given strike price which would have resulted in being out-of-the-money.
On the other hand, the second type of touch options, the No touch options, requires that the market does not touch the strike price at any point of the given time period. You will win only if the market closes by being below the strike price when choosing the call option, or above if you choose the put option and never “touching” the given strike price for the period.
Additionally, there are alternative more exciting one touch and no touch options as well, giving you the chance to participate in more thrilling situations with more calculations and also a chance to win more money. Double Touch and Double No Touch options with two different strike prices offered. In order for you to win, the asset has to touch, or not to touch depending on which type you are using, the two given strike prices offered by the broker for the given period of time.
Touch trades typically work out well when volatility picks up while no-touch trades are ideal for pairs that have a tendency to consolidate.
Range options are also called boundary or tunnel options. In order for you to win by playing range options the market needs to be balanced between two given strike prices and can never go as low or as high the given two. If you have played Super Mario as a child than you will know that this is something like playing the underwater level by swimming in the middle and not being able to touch the bottom or the surface.
For the In Range the market cannot touch the two given strike prices for the given period of time in order for you to be in-the-money. The market needs to stay during the predetermined range and avoid touching the higher nor the lower strike price. Some brokers even offers Out of Range options where one can make a profit if price breaks out of the predetermined range within the option time period.
For instance, the EUR/USD is currently 1.3300 and the broker offers an option with the trike option price being between 1.3280 and 1.3320 and the trade expires in one hour. Let say that we are presuming that this would be a non-event and that nothing considerate will happen within the next hour and that it would stay balanced. For this reason we decide to go with the “in range” option. During the given hour, the market does not touch the given strike prices and we are in-the-money. On the other hand, if the market would have gone over one strike price just a bit and for a second, then we would have been out-of-the-money.
The range options are a great way to earn higher amounts. It allows you to win big because the average percentage which the brokers offer can be as low as 200% and go as high as 750% where you can really cash in on your trades. Range options are best used when volatility is low, although some brokers offer the option to take risk on the idea that price will break out of the predetermined range. Alternatively, a few brokers also offer options on predetermined ranges that are far from the current market price.