The world of binary options presents you with several types or styles of trading. As you get started, it is important that you choose one type of trading style so you can really master a specific portion of the trading market.
The 3 Most Common Types of Binary Options
In other words, the more focused your trading style, the more successful you will be in making correct predictions during your trades. There are many types of binary options, but here you will learn about the three most common ones to start with:
Call and Put Options
Also known as high/low options, call and put options are the most basic type of binary options. Trading a CALL option means that you believe the price of an asset will increase or go higher than its strike price. On the other hand, a PUT option is purchased when, from your assessment, you believe the price of the asset will go lower than the strike price.
For example, say the strike price of Nike stock is $129 and you choose an expiration time of 1 hour. You may buy a CALL option if you believe that Nike’s stock price will rise above $129 or you may purchase a PUT option if you think the price will go lower than the current price after 1 hour.
Touch no Touch Options
The touch and no touch type of options are a little different from the basic call/put options. Here, your broker will provide you with a price and you need to predict whether the price of an asset will reach the given price point before the expiration time i.e. whether the price of the asset will TOUCH the given price point before the duration of the trade comes to an end. Alternatively, you can predict whether the price of the asset will reach the price point i.e. NO TOUCH will happen.
For example, let’s say crude oil is trading at $42 a barrel and the broker offers you a target price of $43.67 and you choose an expiration time of 1 hour. If you believe that the price of crude oil will reach the set price point of $43.67 before the 1 hour, you can initiate a TOUCH option. On the contrary, you can initiate a NO TOUCH option if you believe the price of crude oil will not reach the target price of $43.67.
A major reason why traders prefer touch/no touch options is that this type of binary options can have a significantly high payout. Some brokers offer as much as 500% in returns. Even then, it is recommended that you only use these options occasionally because these are high risk-high yield options and it can be difficult to consistently make correct predictions.
Few brokers offer this type of trade. In boundary options trading, the broker provides you with two prices. You need to predict whether the price of the asset with reach at a middle price point between the prices the brokers have given you. Alternatively, you can predict whether the price will go beyond the price boundaries provided by the broker.
For example, if the USD/EUR is currently trading at 1.2960, and the provided boundaries for this currency pair is between 1.2950 and 1.2970, you need to determine whether the currency pair will fall within or outside this given boundary before the trading session expires.
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