Here you will learn the basic binary options bets including One Touch options, Double Touch options, European and American style trading. What is ideal about trading binary options is that the trader is by no means obligated to care, store, ship and handle any of the goods, stocks and commodities he owns or purchases. For example, should one invest goods such as oil or gold, there is no actual necessity for that person to physically posses any of the oil or gold he otherwise acquired through making a purchase.
Because after all, the stock or commodity in question is not really owned by the trader, for he can only be compensated by hard currency, or not at all. Some questions might arise as to whether or not the broker really has the underlying commodity/stock in his possession, but for something to register on the global market index, it has to exist in one for or another. And as long as the returns are met accordingly, the trader has nothing to worry about.
The binary option is truly an easy and intuitive way to make a considerable profit, in little to no time at all! We can make the whole experience even more interesting by introducing the so-called ‘exotic’ or touch options.
Binary Option “touch” Trades
The idea behind these exotic bets, is that traders are allowed to model their trades with greater precision, in comparison to just using the Call or Put options. When we say ‘touch’, we refer to the notion of an asset shifting its value to a certain level (up or down). However those bets are played makes no difference to the overall point of the trade, leaving the main objective the same as it always was: either the value of an asset is going to reach a predetermined level or not. There are four ‘touch’ trades that we will be mentioning below.
A prediction placed by the trader, stating that the price of an asset is going to reach a certain level for the given time period. Should the level be reached before the contract expires, the trader will be due his payout.
No-touch. A prediction placed by the trader, stating that the price of an asset is NOT going to reach a certain level for the given time period. In this situation the difference in value of the underlying asset does play a role when the payout is concerned – bigger differences, smaller payouts.
A prediction is placed by the trader, stating that the price of an asset is going to either rise/fall over/under a certain level. It doesn’t matter whether the price actually falls or jumps; the trader only has to set a lower and upper trigger price. And should that price be reached, the trader then gets his due.
In this situation, the trader knows that the price of an asset is going to change, and just like with the double-touch option, sets two trigger marks both on the low and high end of the spectrum. The only difference is that this time, the trader will be betting that the price WILL NOT rise/fall under/over the trigger price.
Whichever strategy the trader chooses to go with, should depend on the nature of the economy from where the certain asset hails from. More quick and explosive markets demand options such as the double one-touch; in order to exploit the sudden change in prices, regardless of their direction (up or down). Flatter, more docile markets are expected to have fewer and more insignificant fluctuations in price, thus calling for the no-touch or double no-touch binary options.
Every investment should be handled with care and attention. Knowing the particular niche you are striving to make money out of, can and in fact will determine the success of your investment. Sudden and often unexpected changes in the global/local market economy can affect the price and conditions under which a certain asset or set of assets are handled by the broker. Competitive brokers are also known to speculate with the prices of their stocks and commodities to the level, where they affect the overall price of the assets themselves, and not just on that particular market. A sudden rise in oil prices for example, can affect a wide variety of industries; and consequentially the traders who handle their respective shares.
We have omitted one important factor when summing up what binary options are all about. Looking at the four ‘touch’ options above, when do you think is the difference measured? Sometime during the agreed time period; or at the very end of the agreed time period? Both answers are 100% correct, depending however on where you live (figuratively). These two variants are referred to as an American style option and as a European style option, respectively.
European Style Options
They are famous for being evaluated at the exact moment the full option period expires. This means that should at some point the price of a certain asset reaches the agreed-upon level, but then at the end of the contract it reverts back to its original value, only the latter results are taken into account, effectively bankrupting the trader.
American Style Options
They are a little bit lax when it comes to the exact time the desired levels are reached. As soon as the trigger price is reached (within the contracted period) the trader gets the payout. But should of the level remain unreached, the trader has to forfeit his assets as usual.
Whether a trader chooses to go with the American or European style binary options, should also be determined by factors such as re-investment options (playing an option now or in the future, and investing the return on some other venture) and interest rates.