The primary way to trade binary options is to use the Up/Down option type. This option type is similar to regular Forex and option trading, and unlike other types of binary trades it doesn’t revolve around, well, a gimmick.
But there are several other different binary option trade types offered by most binary options brokers. These other option trade types are slightly more complicated and riskier for newbies. But the upside is that they generally offer a higher return rate for winning trades. For example, while most broker’s offer Up/Down returns of 70% to 80%, Touch or No Touch and Range option trade types can come with a massive 200% to 400% return.
Not bad, but let’s go over the three main types of binary options modules, how they work and weigh the pro’s and con’s of each.
Types of Binary Options
1. Up/Down Binary Options
As mentioned above this is the most popular type of binary option, and if you’re a beginner, it should be your main focus. This trade type goes by several names: Up/Down, High/Low, Above/Below, and Over/Under. The names may be different but it’s the same type of trade.
Similar to trading regular options, trading binary options using the Up/Down module is simple: If you believe, based on your analysis that asset A is going to rise in value at the time of the trade’s expiry, then you place a Call option, or buy. If you think price will fall, place a Put option, or sell.
You can find detailed examples of this on the How Binary Options Work section.
Sounds simple, huh? It is, and that’s exactly why brokers give these options the lowest payouts. The expiry times of Up/Down options will vary, but here are a few of the most common time frames offered by brokers: 60 seconds, 5 minutes, 10 – 15 minutes, 60 minutes and end of trading day expiries.
2. Touch or No Touch Binary Options
Binary options platforms that offer touch or no touch trade types are also simple, have higher price payouts but come with a little higher risk.
On Touch trades, you don’t need to predict whether an asset’s price will be higher or lower than the strike price at the expiry time. Instead, each available trade will give you a strike price that is several points away from the current price. If you believe price will touch that strike level before time expires, then you select TOUCH and place your binary option trade.
If you’re looking at the strike level your broker is giving you and you believe price will NOT touch that level in the given time, then you select NO TOUCH. If at the time of expiry you were correct and price fell away from that level, then that trade is considered in the money.
In the money (ITM) is just binary options lingo for “You Won!!!”
Most brokers will only offer Touch or No Touch trade options during specific times of the day, some will even offer them over the weekends where traders have the potential to make anywhere from 100% to 400% on their investment. Although again, if you’re a binary options beginner, this is not advised.
So when are the best times to select Touch and No Touch option trades?
Generally, placing Touch trades during periods of higher volatility, such as at the start of the London or U.S.A trading sessions or during news events, is considered a trade with a higher probability of winning in the money.
On the opposite end, it’s a good rule of thumb to place No Touch trades during periods of low volatility on pairs that have a tendency to consolidate, or move sideways.
3. Range Binary Options
If you believe the asset will stay within the boundary of price given by the time of expiry, then you would place a In Range option. In Range options means price CANNOT touch either of the two price lines given. If price does touch one of the lines, then you lose that trade and are out of the money and lose your investment.
Most brokers who offer In Range options will also allow you to select Out Of Range. If you select an Out of Range option, then you believe that price will move out of the price boundary and continue to stay out of that boundary at the time of expiry.
If the trade expires on the line at the time of expiry, which is uncommon but it does happen, then that trade is considered a Tie and you get back what you invested but don’t make any money on the trade. The purpose of binary options trading and trading in general is to not lose money, so consider a Tie a win on your part.
It’s a good idea to trade In Range binary options when volatility is low and Out of Range during periods of high volatility. Just take Timing and economic news into consideration, so if volatility is low but a major report is coming up, it’s a good idea NOT to select an In Range option type.
Keep in mind that this covers only the three main types of binary options trade types. There are several other, more gimmicky binary options trade types that many brokers offer. Stick with these three trade types if you’re a beginner.
Ready for the final lesson? Let’s do it. Next