Many brokers offer a wide variety of instruments and not just the banal Up/Down choice. It’s easy to get confused and it’s not clear which is better or worse.
Often, brokers don’t bother to explain the characteristics of these instruments and simply tell fairy tales about how profitable they all are. However, we are no longer children to believe in Santa Claus. Let’s find out the truth then.
Below we’ll look at the main types of binary options trades and learn how to use them.
Up/down options
This is the most popular type of binary option. All I need to do is predict whether the price will go up or down within the specified expiry date. It’s impossible to make it easier.
I choose “Up”. What matters is whether the price is in line with my prediction, even if not immediately and even if there are swings. The main thing is to be at least 1 point higher at expiry. And with that I’m making a profit.
The same with the Low option. No matter what is happening with the price, the main thing is that at the end of expiry it is at least 1 pip below the current level. Good.
It’s no surprise that this is the most popular options choice.
Where is the best place to use these options? On rebounds from support and resistance lines (we’ll describe this in a separate lesson) and when working with trends. For example, in the picture, it was possible to work exactly according to the trend and score with a large margin.
Up/Down
- Up: profit if the price is higher than the current price during the expiry period.
- Low: profit if the price is lower than the current price during the expiration period.
One Touch and No Touch
In this variation of binary options, we make a prediction that the price will reach a certain price within the expiration date. All it takes is one touch. That’s it.
Touched the price of the support or resistance line – that’s it, we’re in profit. And it doesn’t matter where the price goes later.
Without touching
The opposite situation is the “No Touch” option. Here we need the price not to reach a certain level. It’s almost the same thing.
The second option, as you know, is a bit riskier. In the first case, if the touch happened – we’re in profit. What happens afterwards, during expiry, is irrelevant.
In the case of the “No Touch” option, we need to wait for the expiry date to pass, and during this time the price must not reach the level we have chosen. This type of option is usually used at the end of the week, when volatility is usually low.
One-touch options are most commonly used when working with technical analysis patterns. For example, you see the formation of a potential “double top” pattern, so you set the level at the location of the potential formation of the second top.
Or you see that the price on all pairs is moving towards the support or resistance line and you want it to touch. Great, the One Touch aspect is here to help you.
But the No Touch option is ideal when there is low volatility in the market. The price is slow and doesn’t move. On Forex, it would be useless. But with binaries, with the help of No Touch, you can make money.
However, remember that when volatility increases and the price accelerates, the No Touch choice is risky. That’s why, when working with this option, people prefer the Asian session and euro/dollar currency pairs. At night, in Brasilia time, the volatility of this currency pair decreases.
A popular case for the No Touch option is in a sideways movement after a strong trend. Or in the reversal movement after it.
One Touch/No Touch: Usage
- One Touch: Profit if the price reaches the level we have chosen within the expiration date.
- No Touches: Profit if the price does not reach the chosen level within the expiration date.
Boundary or Range options
Another fairly simple variety of binary options. The name speaks for itself. At expiry, the price must close within the selected range.
There is another tool – Out of Range. The point is clear – during the expiration time, the price must go beyond the indicated range.
In the case of a range, even if the price goes beyond one of the limits, there is no problem if the price returns to the range during the expiration period. With the “Out of range” option, everything is clear. The price during the expiration time must be outside the limits indicated by us.
The use of both tools is clear. The “edge” is not used along the trend – only in the sideways movement, which is described on the website. But for the “Out of range” option, the ideal is to work with the trend.
Limit or Range: Use
- Limit: The price must remain within the range
- Range: The price must be outside the range during expiration.
Spread
Here we are betting not just on the fact that the price will be higher or lower than a certain value, but on the fact that this value will be specific. For example, in 30 minutes the price will be 20 points above the current level.
For these trades, they always give a higher percentage than for the classic up/down, which is understandable – these trades are riskier and the entry must be much more precise.
Pair options
This is a funny kind of binary option, where one asset must score more pips than the other. For example, we choose Google and Facebook shares. If Facebook shares rise in price more than Google shares during the expiry period, the trade is successful.
If Google turns out to be faster, the trade is unsuccessful, sorry.
And by the way – even if Facebook’s price falls, it’s not scary – the main thing is that Google’s price falls even more. The asset that gains the most or loses the least always wins.
In such trading, the direction is not important, what matters is how the two assets correlate. As a rule, these bets are accepted on shares or indices.
Stairs
The binary options ladder is a relatively new type of transaction that is somewhat complicated at first glance. However, it’s not that easy to understand.
Remember “Touch” options, where we need to predict that the price will reach a certain level. So there are several of these levels on the ladder and when you touch each one, you get more and more money.
For example, the price is at 106.425. The first level is 106,500. If the price touches it, you make a profit. It looks the same as “Touch”, but there are differences.
Trading contains new levels, for example 106.550, 106.600 and so on – these are determined by the broker. If you choose a level further away from the current price, the risks are significantly higher, but the payouts are often greater.
This is, in fact, a variant of the brokers’ martingale strategy. You have to catch a very good trend for the price to break through these levels one by one. And then, for 1 trade, you can get, as you can see in the screenshot, more than 1000% profit.
The risks of this type of binary option are very high and I wouldn’t recommend using it. However, we can’t help but agree that if you’ve managed to “close” a good trend, after breaking through one level after another, you’ll multiply the value of the transaction.
I recommend using the ladder when good economic news comes out, when the price is guaranteed to show a rise.
Choose your type of binary option
These are the main types of binary options you can find at different brokers. Some offer the simple Up/Down, others all the options at once.
I’d recommend not getting too excited about high-percentage types. Now that you know the essence of binary options, you know that the broker won’t do anything to your detriment. If a large percentage payout is given for some instrument, it’s profitable for the broker to do this. It knows that most of these percentages don’t work out (otherwise the broker would quickly go bankrupt).
So use any options with high interest rates carefully, not forgetting for a minute that you are acting against the broker and it is keen for you to lose. So the more attractive this or that type of binary option is, the more ingenious the trap the broker has set for you.
Be smart, don’t be greedy and learn to use the basic binary tools before moving on to the more complex ones.
