Boundary Binary Options Trading
There are a number of different ways you can choose to trade binary options. The most common one is to bet on whether the price of an underlying asset will go up or down. The name of this type of options trade is up–down, or a call–put option, and we’ll be looking at this option on another page. This is the type of trade that many traders choose to start with before moving on to more complex options. But here, we’ll be concentrating on boundary options, also known as range or tunnel options.
What is boundary options trading?
Also known as tunnel or range options, these are trades that forecast whether an asset’s price will end within a predetermined range. Two different price levels are defined, an upper and lower level, and in order to receive a payout you need the asset to stay within the boundaries. There are two types of boundary trades. Traders can choose whether the asset will stay within the limits, or whether it will break outside. In a stable market a trader should trade within the boundaries; but in a more volatile market, it would be wise to trade outside the boundaries
How boundary options work
Boundary options trades allow a trader to predict whether an asset’s price will stay within the confines of a predetermined price range. It’s always good to give an example, so here goes with ours:
Say, for example, you believe that stock in McDonald’s will be traded between $9 and $10 for the next trading month. You may decide to enter into a boundary options contract that has $9 and $10 as the strike prices, with 1 month as the expiry date. Move on to 1 month’s time, when the contract expires, and the price closes within the boundary of $9 and $10. Your trade will generate a win. Should the price end up above or below the boundary limits, though, you will be out of the money.
There is, however, another way to use boundary options. This is to look for prices to trade outside of a predetermined range. In the example above, should you decide that the price will end above or below $9–$10, your trade will earn a profit as long as it ends outside of the predetermined range.
As you become more knowledgeable about different types of trading options, you might consider boundary options to be worth a try. A small piece of advice that will help you to profit from this type of strategy is to focus on the underlying volatility in the markets. If you think volatility is on the increase, it will make sense to trade outside of a chosen boundary. On the other hand, if you believe that markets will become more stable, it’s only sensible to trade on the speculation that prices will remain within the specified boundaries.
What are the benefits of trading with boundary options?
There are a number of different benefits to trading with boundary options, and here we’ll be looking at the most important ones for you. Keep reading, and next time you feel like trying a different type of binary option you’ll be ready and able to give this type a go.
Boundary trading gives traders flexibility, and is a great way to increase profits in most market conditions. A trader is given the choice of agreeing or disagreeing that a price will stay within a predetermined range. This means it is favourable for both trending and range-bound markets. In general, the tighter the boundaries, the more profitable a closing trade has the potential to be.
Why trade with boundary option types?
There are a number of different reasons you should choose boundary options as part of your trading strategy. Some are obviously more important than others, so we’ll concentrate on those here.
Boundary options is a relatively easy method to learn. After a little bit of practice your decisions will become almost automatic, which means you’ll be more likely to enjoy greater success. Boundary options are influenced by movements in the markets, so it’s important to keep in touch and up to date with the latest financial news, as not doing so will hamper your chances of earning a profit.
We’ll be featuring a number of brokers who offer boundary options, along with some relevant reviews.
When the markets are volatile, boundary options are a great way to trade and increase your chance of success. Stick with us, as we’ll be bringing you plenty more information to help you on your binary options trading journey – with the ultimate goal being your success.