Binary Options Types
Binary options trading has taken the investment market by storm. It is a fairly new concept, and currently one of the fastest growing sectors, especially for investors who don’t really consider themselves experts or professionals. It doesn’t require a huge amount of capital, and there is little need for an extensive financial background. The return it offers investors can be immediate and high, regardless of initial investment. However, even though it has become so popular there are still a huge number of investors who don’t really understand how it all works – which is rather a shame, and is one of the many reasons we’ve started this site. Our aim is to inform all potential binary options investors of the most important aspects to know, and to help to guide them through this new and interesting way of making money. Here we are going to be looking at types of binary options, and will be introducing the commonest ones.
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The best binary options brokers offer a range of options types, so it’s important to understand the differences and choose the right one to suit your own trading needs. More experienced traders use a range of different methods depending on market conditions, and on how they expect the markets to respond to various external influences, trends, results and other contributing factors.
Introducing a range of the most common types of binary options
- UP/DOWN, CALL/PUT or DIGITAL OPTION
This is the commonest type of binary option, and as you can see it goes by a number of different names. This method involves the trader placing a call if they believe the price will be higher than the entry price once the contract has expired. If the trader believes the price will be lower than the entry price, they place a put. With a digital option you are predicting whether it will end higher or lower than the active trade rate when the trade was entered. These are perhaps the easiest of binary options to trade, and typically offer a return of 60–75% on the initial investment.
There can be a number of different expiry periods such as 1 hour, 30 minutes, 60 seconds, or at the end of the trading day. As soon as a trader has committed to a trade, the trading platform will monitor it and exit the trade at the agreed time. There isn’t any need to be logged into the system, and notification will be sent, generally by email, to inform the trader of the closing status of the trade. It is easy to follow the status of all ongoing trades via the trading platform, or from your account portfolio page.
- TOUCH OPTION
There are a number of different versions of this particular type of option, including touch, no touch and double touch. This type of option is slightly different to a digital option in that it has predefined rates. Instead of predicting whether the underlying asset will increase or decrease, a trader predicts what level it will reach. Predicting it will reach a level is called a touch, and if a trader thinks it won’t reach a certain level it is called a no touch. The predetermined level can be either higher or lower than the asset’s current price.
Options like these can only be purchased at the weekend when the markets are closed, and then the option is traded during the week. A win is declared if the asset touches or passes the specific level at 5.00 pm on Monday. In some cases, this can result in a payout of 500%. If you are out of the money, the trade continues in the same way right up until 5.00 pm on Friday, when the platform expires. Each day the price is checked to see whether it has reached the rate needed for a win – which is effectively five chances to hit the target.
A no-touch option pays out if the defined level is not reached, while a double touch involves two defined levels, with a payout if either level is reached.
- 60 SECOND OPTION
This is becoming a very popular type of binary option, and as the name implies, the contract expires in 60 seconds. What is the advantage of this type of short-term option? If the value of an asset is obviously moving in one particular direction a trader can take advantage a number of times, by conducting a succession of trades in order to maximise profits. Traders who love the idea of quick rewards love this type of binary option, as also do with those who are able to respond quickly to sudden movements in the market.
This type of option is the same as a digital option, but has a much shorter expiry time, and is popular amongst traders who enjoy quick profits from a trending market.
- BOUNDARY OPTIONS
This type of method is also known as a range option, or tunnel option, and is very similar to a touch option, in that it involves a predefined level. However, in this case it involves two defined levels. There is an upper and a lower level, known together as the boundary or range, and a trader is predicting whether the asset will stay within the range in order to receive a payout. A number of brokers will allow a payout if the asset breaks out of the boundary.
This method is better in a stable market if the trader is predicting whether an asset will stay within the boundaries; or in a volatile market if the trader predicts that the asset will be outside the boundaries as predicted.
OTHER TYPES OF BINARY OPTIONS
The methods we’ve already mentioned are the commonest types of options. There are, however, a number of others that individual brokers have created for their own clients. Take, for example, Banc de Binary, who have developed a method called BinaryMETA. This method allows a trader to sell early or double their money in the middle of the trade. Banc de Binary clients are given access to a number of different tools that allow them to follow an asset’s history from the time it started trading. Using a number of different buttons, a trader can click backwards and forwards in time, as well as see their option included on the graph. This useful tool means that a trader can analyse their options and make decisions in real time, just like a professional trader.
To finish up let’s give you a few tips, so that you might consider yourself ready to make your first trade.
Tips when making your first trade
- Understand and manage your risks. The ideal level of risk should be no more than 1% of your equity, with a reward of at least 50% or more of risked capital.
- Know your options. Each offers different returns, so we hope we’ve helped with this decision.
- Select the right expiry time.
These three factors, when combined successfully, will increase a trader’s chances of a more profitable trade – providing of course, they stay disciplined and don’t let greed or emotion take over their trading decisions.
Stay with us here at topratedforexbrokers.com , because we’ve got a whole lot more useful information to guide you in your binary options trading journey.