Different Types of Binary Options
While binary options are defined as simple all-or-nothing trades, there are actually a number of different types of binary options. The common trait they share is that one of two possible outcomes are available. Either you win or you lose, as simple as that. If you win, you receive a pre-set payout percentage determined by your broker, usually in the range of 65-85%. If you lose, you may get a refund of 5-15%, or you may get nothing, depending on the broker and the type of option. If you haven’t already read our article about the basics of binary options trading, I recommend you start out there and then read this article to learn more about the different types of binary options.
Some binary options brokers only offer one or two different ways to trade, while others may offer a number of different trade types. You would be hard-pressed to find a broker who offers every single type of trade we list below, so you will have to be selective based on how you plan to trade. Different types of binary options trades are most suited to different types of trading systems and personalities. You will have to learn more about yourself as a trader and start researching and testing trading methods to figure out what is best for you given your particular needs.
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The most basic type of binary option trade which pretty much every broker on the planet offers is the standard High/Low trade, also known as Up/Down or Call/Put. With this trade, you are answering the following question about a given asset:
Will the underlying asset be trading above or below its current price when the expiry time comes to an end?
If you decide that the asset will be trading above its current price (the price will rise), you choose “Up,” and if you believe price will drop, you choose “Down.” Call and Put mean the exact same thing as Up and Down. Calling is buying and putting is selling. If the price of the asset does indeed move in your favor and you win your trade, you will receive the payout percentage your broker has set. If you lose your trade because price did the opposite of what you predicted, you will either receive nothing or a small refund, depending on your broker’s rules.
The simplicity of High/Low trades makes them very appealing to new traders who have a difficult time understanding more complex trading concepts. If you are new to trading, you can literally learn how to trade within five minutes or less. Trading profitably will take a lot more time and effort, but the foundation is quite simple. Online trading platforms present High/Low trades in an easy-to-read format and make it simple to input the amount of money you want to risk and to see when your trade will expire.
One Touch Trades
Another popular type of trade is the One Touch trade. With this trade, you are answering the following question:
Will the underlying financial asset reach X price within the expiry period?
So for example, perhaps you have been following the price movement of gold, and you believe that gold’s price is rising. You see a One Touch trade available on your broker’s platform for gold. The graph shows you where gold is trading now in terms of price, and then you will see a “goal rate” or similar number listed, along with an expiry time. Let’s say the goal rate for gold is 1440, and currently goal is at 1385. The direction of the trade is “Up” since you are wagering that gold’s price will rise and hit 1440 within the expiry tie, which is 21 minutes. You put in the amount of money you wager and wait to see what will happen.
If gold’s price touches 1440 anywhere within the 21-minute time period, you win your trade. If gold’s price fails to touch 1440, you lose the trade. One Touch trades often carry higher payout rates than other types of binary options trades, so instead of being offered a 75% payout, you might be offered as much as 200%. How high the payout can go will depend on the broker. Some brokers offer payouts up to 500%.
Variations on One Touch Trades
There are a number of less common variations on One Touch trades. One variation is No Touch. This is like the opposite of a One Touch trade, where you are wagering price will not hit a given strike price. So for example, a No Touch trade based on the trade above might go like this. The strike price is 1440, but you are saying that gold will not reach 1440 in the 21 minute expiry period. If it does hit 1440, you will lose your trade. If it does not hit 1440, you will win your trade.
Another variation on the One Touch trade is the Double One Touch Trade. This is similar to the One Touch trade, except that there are multiple strike prices which can be specified. So you could for example wager that price will touch either 1440 or it will touch 1300. This is a non-directional trade, since you could win if the price of gold rises or falls, as long as it rises or falls far enough to hit one of your two strike prices. There is also such a thing as a Double No Touch Trade. This is where you say that gold will hit neither 1440 or 1300. This is basically a Boundary trade. Read on below to learn more about those.
Boundary trades are also known as range trades, because when you place one, you are wagering that a given asset will trade inside of a clearly defined range for the duration of the expiry period. So in the case of gold given above, the range might be defined as 1300 to 1440. If gold trades outside that range during the expiry time, you lose your trade. If it trades within that range the entire time and never hits either of the prices defining the range, you will win your trade.
Boundary trades are among the more unique aspects of trading binary options. Why? Because traditionally it is quite difficult to profit in a market which is not moving. Traders generally make the most money when the market is trending up or down and there is some substantial movement. It is harder to profit from the small movements which happen in markets that are consolidating because in most types of trading, you can really only make money when price rises or falls. But with boundary trades, you can literally trade from price not moving. This is a rare opportunity, and one which by itself draws many traders to the world of binary options.
60 Second Trades
One of the most exhilarating types of trades is 60-second binary options. These trades are just like standard High/Low trades, except that they take place a lot faster. There are many different expiry times available for High/Low trades, but usually they will take at least a few minutes or a few hours to unfold. 60-second trades are High/Low trades which literally start and end within a one minute time period. These are some of the fastest trades on the planet!
60 Second trades are great if you enjoy fast-paced financial action or if you are good at scalping. You need to have a great connection with no delays to trade this way, and you also need to have the right disposition, trading method and mindset for it to be profitable. It is not usually recommended that you start out with this type of trading if you are new to binary options since it is easier to learn (profitably) on slower trades. Once you have a feel for what you are doing, you can try the faster trades and work your way toward the 60-second options if that is something which interests you. The pacing can be a bit much for a newbie trader to handle, but you may eventually find you enjoy life in the fast lane.
This is a special type of binary options trade currently only offered by StockPair. If you have some familiarity with Forex, you already know that with Forex trading, you are profiting on the relative movement of one currency versus another. StockPair’s stock options work just the same way. You profit from the relative movement of one stock vs. another. So for example, you might believe that the price of Google will rise relative to the price of Facebook—even if both stocks are falling overall. If you wager that Google will be doing better than Facebook within the expiry time and you are right, even if both stocks fall, you win your trade.
Now you know about the main types of binary options trades. Different brokers offer different types of trades. Before you can decide which types of trades are right for you, you will need to develop your trading system. Some systems rely on being able to place Boundary trades, while others may rely on being able to place One Touch or High/Low trades. Choose a broker which has excellent reviews and which can provide you with the types of trades you need to come out on top.
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