Touch and no touch options are of the most popular binary options used in the binary options trading. This options type are helpful when the prices are volatile and the markets might be uncertain. Find below what Touch/no touch binary options are and how they work.
What Are Touch/No Touch Binary Options
Touch/no touch binary options are a little bit different from the basic call and put option. Instead of just predicting whether the price of an asset will move up or down, the touch/no touch requires you to predict whether the price will attain the strike price. This target price can be above or below the start price of the asset. A trader would make a profit if their predicted price reaches the strike price. At this point, you would receive your payout and that trade would close for a new trade.
Touch/no touch binary options are particularly helpful when the markets are volatile and the prices are unpredictable. In a volatile market, it can be difficult to predict the price of an asset after a few hours, minutes or weeks depending on your chosen expiry period. However, it is much easier to predict whether the target price will be touched or not be touched— thus the touch/no touch rationale. The reason why this trading strategy is popular is that it allows you to customize your trade in a way that lets you have more control in predicting the price movement of an asset.
How do touch/no touch binary options work?
The best way to understand how this type of binary options plays out is through an illustrative example.
So suppose you are trading on crude oil, the actual price of one barrel of crude at the time of executing the trade is $90, and the strike price is set at $92.90. Let’s say this particular trade requires a capital of $105 and has a payout of $120 if the asset reaches the strike price before the trading period expires.
If the price touches the $92.90 price point, you will receive the payout; you will lose the capital if the strike price is not reached. In a no touch trade, you would be predicting that the asset’s price would not reach the strike price. You will lose your capital if the asset’s price reaches the strike price before the trading period expires.
One touch binary options
In one-touch trading, you can set a lower strike price. Like for our example above, you can choose a strike price that is much lower than $92.90 and set it at $89. You would then predict whether the price of oil would not fall below $85 before the trade period expires.
The potential payout for one-touch binary options are significantly higher the further away the strike price is from the actual price of the asset. For example, if you set the strike price for crude oil at $92.90, the payout may be 65% but if you were to set it at $99, the payout might increase to 75%. The opposite is true for a no-touch binary trade. The further away the strike price moves from the actual price of an asset, the smaller the payout.
Just like in other forms of financial trading, the higher the risk, the greater the potential to make profits.