Binary Options Markets & Types of Options
Ok, so you’ve read our articles on what it takes to become a successful binary options trader, you’ve done your due diligence on selecting the right broker, you’ve developed a system that yields a positive expected outcome.
If you’ve noticed, the world of brokerage platforms give traders a selection of instruments as well as different methods on how these instruments can be traded. In this article we are going to take a look at some of the ways a binary options trader can place their bets.
Digital Options
The simplest way someone can trade binary options. Basically this a true or false outcome the trader is betting on. For example, do you think the EUR/USD will be higher than 1.3588 in the next hour? If you think so you’d buy a call. If not you’d buy a put. For example, if you buy the call for a $100 your payout will be pre-defined. Let’s say the payout is 75% of the initial trade deposit, and the currency pair moves higher, the trader will make $75… if they are wrong they will lose their initial trade deposit of $100. Pretty simple. The traders risk is defined as well as their payout. They are either going to win or lose.
Of course, some brokers offer ways to get to get out of trades before expiration…but because they vary amongst brokers it’s not worth mentioning, however, you should be aware of these available selections.
Touch Trading
When touch trading, the trader is making a bet that the underlying asset will exceed or reach a specific price level in the future. What makes this different from digital options? Well, with digital options the trader is making a bet on the direction of the underlying, whereas with touch options, the trader does not only have to get the direction right but they also have to be correct on the size of the move. In order to profit from the trade, the underlying must touch the target level at least once before expiration.
Obviously, this is a lot more difficult.
With that said, some brokers offer substantial returns, with great risk to reward setups. Remember, if the payout is 3-1 or 4-1 it typically means that the trade has a low probability of success. In many cases, these types of bets are sucker plays, luring traders in by the high payout potential. This is the equivalent of a vanilla option trader going long deep out of the money options that are expiring in a short period. It’s important to have a catalyst in order to see the potential large move.
Range Trading
Range trading is making a bet that the underlying will be within a specific trading range. For example, The EUR/USD is trading at 1.3588, the option range is between 1.34-1.37. If the trader believes the pair will stay within that range over the specified period of the contract, they would buy an IN range position. Om the flip-side, if they think that it will trade outside that range, they would buy an OUT position. Vanilla option strategies that are similar to IN positions are butterflies, condors, short straddles and short strangles. Vanilla option strategies that are similar to OUT positions would be long straddles and long strangles. In other words, these are volatility plays. If you think volatility stays low, an IN position might make sense. If you feel that that volatility will spike, an OUT position would be favorable. These type of trades are referred as market neutral, the trader isn’t necessarily making a bet on the price but more so on the magnitude of the move regardless of direction.
60 Seconds Trading
Trading 60-Seconds is no different than trading digital options. But as the name suggests, the time frame for the trade is one minute long. The allure is that if the trader is correct, they’ll receive a payout very quickly. However, this type of trading should be avoided by those new to binary options. Trading on a one minute basis is very difficult, the trader should have a very strong grasp of technical analysis. It could be argued that by trading in such a short time frame that you are only trading noise. With that said, some experienced traders have devised betting style strategies to overcome losses and be profitable on these types of trades.
In conclusion, with the increased competition amongst binary options brokers, new ways to trade binary options have evolved. If you visit some of these brokers, you’ll notice that they give some of these styles of trading different names. In our opinion, this is done for marketing purposes to try to set themselves apart from their competition. It’s important that you understand how your broker defines each style of trading and how they vary amongst each other. As binary options trading grows, competition from new players will force innovation on how individuals can trade binary options. Some of these trading styles can be beneficial, while others will be created as gimmicks just to attract new customers.
