Still thinking about which binary options to start with? Here is a comprehensive guide of binary options to get you started. There are at least seven different types of binary options, with more to come as this type of trading continues to expand.
Basic binary options trading is based on a forecast of how an asset will perform in the market during a specified period of time. The asset could be a commodity, a stock or an index. You do not purchase the underlying asset; Instead, you simply predict how it will perform during a specific timeframe. The payout for each trade is predetermined so you need to make your choice wisely.
Types of Binary Options
In the fast-paced binary options market, brokers are continually adding different options to keep up with the demand of traders. This guide will cover these seven binary options types:
- Call & put options
- One touch options
- Range options
- 60 second options
- Long term options
- Ladder options
- Pair options
Call & Put Options
The simplest of the binary options, the call & put option allows you to predict the market movement of an underlying asset. If you believe an asset will increase in price, this is a “call” option. A “put” option in one where the asset is predicted to decrease in price over a set period of time. This option is also referred to as the high/low digital option. You determine the amount of the trade and the expiry period. As long as you must correctly predict the movement of the asset, you will receive the predetermined payout.
One touch Binary Options
The one touch option allows you to select a specific target price that the asset needs to hit at any point during a specific timeframe. The one touch binary option allows you to predict the price that the asset will hit at any time during that timeframe. This type of option is best if you believe an asset will hit a certain price, but are unsure how long it will sustain that price.
Beside this, there are also a few variations on the touch option such as the no touch or double touch option.
Range Binary Options
Range options allow you to predict if the strike price will be within a specific range at the expiry. The broker sets the range and you predict whether or not the asset will be within or outside the range at the expiry. Therefore, this type of option is also called a boundary or tunnel option. The timeframes typically range from 30 minutes to 24 hours depending on the broker.
60-Second Binary Option
As its name implies, this option has an expiration of 60 seconds. This fast-paced trading offers quick turnaround and quick rewards. You have the option to make a series of quick trades while an asset is moving in either direction. These options are similar to call/put options but with a very short expiry period. Because of the quick turnaround of this type of trade, experienced traders can make significant amounts of money.
However, the risk is also higher that you could lose a significant amount of money in a very short period of time.
Ladder Binary Option
The movement of this type of trade resembles rungs on a ladder. The trade is broken down into smaller parts. Each time the strike price is met within a certain timeframe, you receive partial payment. If the strike price is not met, no payout is made for the expiry period. This type of option allows for some wins and some losses within the same trade.
Like the ladder option, the pair option is more a complex binary option. The pair option bases the trade prediction on the relative performance of two assets. If you believe that Asset X will outperform Asset Y within a certain timeframe, you invest in Asset X a pair option. The trade is based on which asset performs better. Even if they both decrease in value, the payout would still be made based on which performed better before the expiry.
The Bottom Line
As binary options trading increases in popularity, new and varying types of trades are being introduced. Although basic binary trading is relatively simple, the variations on these trades are becoming more complex.
In my opinion, new traders should get a feel for binary trading by starting with the call/put options. Experienced traders looking for a quick turnaround or more complex options can check with their broker for expanded options. Not all brokers handle all different binary options types, so check with your broker first to determine what options are available.
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