Types of Binary Options
Binary Options can also be referred to as Fixed Return Options or FROs due to the fact that the payout amount is fixed and determined. All the trader has to do is to simply figure out the direction of the price of the underlying instrument or asset and figure out which way price would go without putting into consideration other factors. This is why it is considered one of the simplest form of trading. Due to the fixed payout, investors are aware of the probable gains or losses. There’s a huge potential for earnings, whilst risk is limited and this is why Binary Option has continued to see a rise in popularity. There are two major variants or all types of Option trading; the put option and the call option.
The Different Types of Binary Options
There are basically several types of Binary Options and we’ll be looking at how the investor can transact with the varying types and some of their unique features.
- Cash or Nothing Binary Options:
The cash or nothing option is the most commonly used binary option. It is also the simplest form of binary option any trader can handle. This type of binary option requires a trader to make up his mind whether the underlying instrument price will rise or fall by a specified time know as the expiry date. Investors who feel that the underlying instrument price will be higher than the present market price at the closing time, then you’ll purchase a ‘Call’ option. At the same time, if the price would close lower than the prevailing market price, you’ll buy a ‘Put’ option.
If the forecast was right and an investor ends up ‘in the money’, the investor gets a fixed payment that ranges from 65% to 70% (it varies according to the broker). Invariably, if you end up ‘out of the money’, you would lose all that was invested in the cash. At the same time you stand a chance of getting reimbursed by some brokers around a 10%-15% amount.
-Asset or Nothing Binary Options:
The Asset or Nothing Binary Options basically is the same as the Cash or Nothing Binary Options. The major difference is that the payout is determined by the price of the underlying instrument itself rather than a fixed payout. It can be viewed as the asset being paid out upon expiration rather than a contract being taken out on the underlying asset.
-‘Touch’ & ‘No Touch’ Binary Options:
The ‘Touch’ binary option requires that the price of the underlying instrument reaches r touches a specified target from the time of purchase of the binary option to the expiration time. The converse is true for a ‘No Touch’ binary option. This type of Binary Options entails that you decide if the asset price WILL NOT touch a specified target price from when it was bought to that of its expiration.
-Double One Touch & Double No Touch Binary Options:
The double touch & no touch option is in a lot of ways similar to the single touch & no touch binary option. What makes them different is the fact that the payout determined via the two defined prices rather than a single defined price. Thus, if the price (For A Double Touch Option) falls between these two specified prices, payout will be assured. For a double no touch option, payout is only 100% when the price does not get to two specified prices from the time of purchase of the option to its expiration time. We refer to these options as ‘Range, binary options and only a selected few brokers offer this type of trading.
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