The binary options market has become one of the forerunners in the non-banking financial sector. What characterizes binary options is that traders do not make any purchases or sales. Traders simply decide on whether the price of a specific asset goes up or down in a specified timeframe. Binary options seem easy at first, but there are many binary options types which need to be explained. Sometimes it is hard to follow every market aspect and one might even trade without complete information. Still, as a trader, everybody should know the basic types of binary options at the very least.
Types of Assets
Prior to that, traders should examine the variety of tradable assets. The most popular are indices, currencies, commodities and individual stocks. Some of the most popular indices include CAC 4, DAX, Dow Jones, FTSE 100, Hang Seng, and NASDAQ. When it comes to currency trading, any currency pair can be traded. Currencies may also be paired with bitcoins. Commodity binary options give you access to trade on fixed commodities like gold or silver values, and many others. Copper, oil, silver and gold are the forerunners in commodities trading. Trading in values of shares and stocks can be a risky business especially for beginners, given that their prices fluctuate throughout the day. You can trade in hundreds of stocks, the choice is limitless. The best known companies and brand names are the favorites when it comes to trading stocks and shares. For example, Microsoft shares, Vodaphone, Toyota Motors, as well as Walt Disney shares count to the most traded assets. Many binary options trading sites offer trading in Facebook and Twitter shares. This appeals to the vast masses of the trader community given that social networks are a part of everyday life of many of us. Also, the banking industry, as one of the most fluctuating sectors, is very interesting to binary options traders. Goldman Sachs, Barclays and J P Morgan Chase count to some of the most popular trading targets.
Strategy Types of Binary Options Trading
After listing the top tradable assets, let us shift to strategy types of binary options.
- The High/Low Option
The basic type is the Call/Put or High/Low option. This strategy type is based only on yes and no decisions and is the most common type of binary trading. Call and Put work in the following manner:
You choose an asset within a timeframe. Let’s say you select oil with a five minute expiry time. Your task is to decide whether the price of oil will go up or down in the given five minutes. This type of trading usually includes time frames between 5 and 15 minutes, and sometimes, the whole day. If you are right and correctly predicted the price direction, you win. Otherwise, you lose.
- One Touch or No Touch Option
This is a slightly different type of binary options trading. It involves predicting if the price of an asset will hit the upper or lower limit set by the trader in a specific timeframe (15 minutes, daylong, etc.). For example, you have a commodity price of $1.2345 and you bet that the price will not exceed 1.2445 in the given timeframe. If the price stays under $1.2445, you win the trade. You can also bet on the opposite, that the price will reach or touch $ 1.2445 at any point within the given timeframe, and if it does, you walk away as a winner. The One Touch type is far more risky and hence, payouts for this kind of trading are significantly higher (up to 300%), while the average payout rate for High/Low option does not exceed 85%. The No Touch option works in the same way just that traders bet that the price will drop. Double One Touch and Double No Touch are also possible and they refer to multiple values.
- Boundary or Range Trades
This type is known as channel trading.The prices range within the so- called channel whereby the traders predict whether the asset’s price will end up in the pre-set range. The asset price has to be in the marked channel area when the trade expires. Important to mention is that the range is determined by the broker, not the trader. Traders choose the asset, the amount of trading money, and whether the asset price will end up inside or outside the range. The range is indicated by a different color on the chart. Expiry dates depend on the broker and usually vary from 30 minutes to 24 hours. This type also includes an opposite version, the Out of Range Trade. In this case, traders bet that the price asset will end up outside the predetermined range by the end of the trade. Range trading is not that frequent; it is only offered by several brokers so far. This type of trading is not recommended to beginners, but rather meant for experienced traders.
- Short-Term or 60 Second Trades
This type of trade is very common and most frequently offered with the High/Low option. As the name says, this type of trade lasts for one minute. This type appeals to the masses because it is risky, fun, and can earn you fast money. Nevertheless, you can also lose your investment in just 60 seconds. Some traders, who possess the required skills and are able to make quick judgments, love this kind of trade, while beginners and traders with no strategy should rather take a pass. This type is aimed at making quick money. Small price movements are not significant in long-term trades, but can make you money with this type. Place multiple trades and rely on the strong trends to earn significant amounts in one minute.
- Turbo Binary Trading or 30-Second Trades
More and more brokers add turbo trading to their package. This type works on the same principles as 60-second trades. They are offered with the High/Low option and bear the same risks as 60-second trades, just that they last shorter. The good thing about both types (30 and 60-second trades) is that traders always know the expiry date and do not have to double-check. Also, these types are convenient for impatient traders.
- Long-Term Trades
Long-term trades have longer expiry dates that can last for days, weeks and even months. Beginners should stick to this trading type given that they will have more time to contemplate their decisions and investments. Many rush into the market and start randomly trading within narrow timeframes, whereby they usually lose large sums of money within a very short period of time. Long-term trades are more stable.
- The Ladder
The Ladder trading type is rather new on the market. It refers to trading where traders receive several price levels at equal distances, i.e. just like a ladder. Traders decide on three different strike prices and expiry dates and each is accompanied by a percentage rate of the payout. The percentage depends on the risk of the trade (the higher the risk, the higher the payout). Traders determine the strike prices and expiry times, while the broker decides on the payout percentage.
- Pair Trading
Pair trading refers to trading the relative performance of two underlying assets. The assets which make a pair are usually similar and in the same industry. For example, you can place trades on who is going to trade higher in a given time-frame (e.g. Google or Apple).
Conclusion
This binary options types review summarizes the old and new options in the market for traders and potential traders who should know about all types out there in order to choose the most suitable ones for themselves.