There are a number of different types of Binary Options available for trading. This can seem a little confusing to a new trader and indeed some experienced traders.
Traders can choose the method most suited to their trading needs. Experienced traders choose different methods depending on the current market conditions and how they expect the markets to react to external influences, announcements, results, trends or other conditions.
The most common is the Digital Option or often referred to as the UP/DOWN Option and the CALL/PUT Option.
The trader places a CALL if he/she believes the price will end up above the entry price after the expiration of the contract and a PUT if he/she believes the price will finish below the entry price.
You must simply determine whether the digital option will end at a higher or lower rate than the active trade rate when you entered the trade.
Various expiry periods are available including 60 second, 15 minutes, 1 hour, end of day etc. Once you have committed to the trade, the platform automatically monitors your trade and exits at the appointed time without you even needing to be logged into the system. You will usually be sent an email notification with the closing status of each trade.
You can easily follow the status of on-going trades on the Trading Platform or from your account portfolio page.
The Touch Binary Option is another method of trading Binary Options. It has a number of varieties including TOUCH, NO TOUCH and DOUBLE TOUCH.
It comes with predefined rates needed to win the trade, rather than the trader simply predicting whether the value of the underlying asset will increase or decrease, he/she predicts a level it will reach (touch) or not reach (no Touch). This can be a level that is either higher or lower than the current price of the asset.
Options can only be purchased at the weekend when the trading markets are closed. Then it trades during the week. If the asset touches or has passed the specific level at 17.00 GMT on Monday, the system declares a win, and the trader receives a predefined payout of up to 500% in some cases. If you are out of the money, the trade will continue in the same manner until Friday when the platform expires, continuously checking each day to see if the price has reached the rate needed for a win. This gives the trader 5 days and 5 chances to hit the target.
NO TOUCH - pays when the level defined is not reached and with DOUBLE TOUCH two levels are defined paying out when either level is reached.
One Touch is ideal for traders who believe that the price of an underlying asset will reach the predefined level in the future, but who are unsure about the sustainability of this price.
60 Second Option
This method expires in 60 seconds and is becoming more and more popular. The advantage of 60 second trading is that if the value of an asset is clearly moving in one direction, the trader can take full advantage by conducting a number of successive trades to maximize their profits. This makes the platform ideal for traders who are excited by the prospect of quick rewards, and who are able to respond quickly and effectively to sudden market movements.
Essentially this method is the same as the Digital Optionwith very short expiry times and used by traders to profit quickly from a trending market.
This method is sometimes referred to as a Range Option or Tunnel Option and is similar to the Touch option but in this method two levels are defined. Upper and lower levels are defined (the boundary or range) and the trader needs the asset to stay inside this boundary to receive a payout. Some brokers will allow trades on payout on the asset breaking out of this boundary.
The variants of this method are where the asset must stay between the limits (or break out of the limits) and where the asset ends between the limits (or ends outside the limits).
This method is ideal in a stable market when trading inside the boundaries and in a volatile market when trading outside the boundaries.
Some brokers have different methods available or allow the trader to create their own methods. For example, Banc de Binary has a method called BinaryMETA which allows the trader to sell early or double their money mid-trade.
The BinaryMETA method gives the trader analytical tools, allowing him/her to follow an asset's history from the moment it started trading. To review the history, the trader simply clicks the backwards or forwards buttons for '1 hour' or '10 minutes'. In addition, they can see their placed options directly on the graph. This allows them to analyze their options and make real-time decisions the way professionals do.
Dominic is a contributor to the Binary Options Guide