When beginner traders progress from the basic call and put binary options, they typically move to other types of options such as the touch-no touch binary options.
What Are No-Touch Binary Options and How Do They Work
In one-touch binary options trading, the trader is required to predict whether the price of an asset will touch a given strike price. If the prediction is correct then the trade will end in the money.
No touch binary options work the other way round. When using the no-touch strategy, you are required to predict that the price of the underlying asset will not reach a given strike price point. The price point may be set above or below the initial price of the underlying asset.
If the price of the asset touches or reaches the strike price point before the expiration time, your trade will end out of the money. On the contrary, the trade will end in the money if the price of the asset does not touch the given strike price point before the expiration time.
Here’s an example of how no touch binary trading works:
Say the price of copper is $1, 200 and you have selected a target strike price of $1,210. If the price of copper remains below $1,210 within the given expiration time, your trade will end in the money. However, if the price of copper touches the $1,210 mark, the trade will end out of the money.
With touch binary options, you can also select a strike price that is lower than the initial price of the underlying asset. For example, you could choose to predict that the price of copper will not touch or fall below $1,190 within the expiration.
What are the potential returns when trading touch binary options?
You will find that most brokers offer much larger payouts for touch binary options than they do for the basic call/put options. It is common for brokers to offer up to 500% payouts for these kinds of options.
Why is this?
Whether you are trading one touch or no touch binary options, the risks are considerably greater than the risks involved in trading basic call/put options. Predicting whether the underlying asset will reach or won’t reach a specific price target can be more difficult than predicting whether the price of the asset will simply move upward or fall downward.
With no touch binary options trading, the further away the strike price is from the initial price of the asset, the higher the risk but the greater the returns.
Let’s take the copper example above: Say the price of copper is $1,200 and the strike price is set at $1,210; such a trade may offer a payout of 70% but if the strike price is set at $1,260 the payout may be a higher at 90%.
In summary, the best time to buy no-touch options is when the market looks most likely to consolidate within a narrow price range i.e. when the price of an asset attains a new high or a new low. As such, you will essentially be predicting that within a given time period, the trading session will remain stable or maintain a certain trend, whether that is an upward or downward trend.
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