Types of binary options
- VFX Blog
- For beginners
Currency and financial market require not only experienced but also a large deposit. Binary options allow you to get a stable profit and with a minimum of investment on ready trading signals. But before we tell in detail how signals work for binary option let's see what types of signals are the most popular.
The term “binary option” is not very well chosen. An option in its classical exchange sense means a contract under which a potential buyer/seller receives the right to purchase/sell a certain asset (commodity, security, futures) at an agreed price and at a certain point in time. A binary (or digital) option, depending on the fact that the conditions are met at the set time, gives a fixed income or does not bring it, but does not provide for the right to act with any financial asset.
That is, a binary option is not derivative security, but is a simplified version of the contract for difference (CFD).
We classify options by the following parameters
- by profitability:
- by the terms of the option:
Classic binary option for newbie’s
Rise/Fall (CALL/PUT, Cash-Or-Nothing )
Binary options trader should predict the direction of price movement and open the option either for an increase or a downgrade.
When you determine your forecast, choose «CALL» if you think that the price of the chosen asset will rise, or «PUT» if you see the prospect of its falling. The amount of profit is agreed in advance and specified by the broker in his offer, usually in the range of 75-85%. If the forecast is wrong, the broker can make a partial return on investment-10-15% (on weekends, holidays and during an inactive market, the number of payments on unprofitable transactions changes).
The expiration period of such options in a wide range: from 5 minutes to 365 days, especially since some brokers allow them to sell these options before their expiration. This makes it possible to reduce the possible loss (and sometimes even make a profit!), but not more, in advance of fixed income.
Higher/Lower barrier (Digital Barrier Option)
If the price of a trading asset at expiration time will be strictly higher (or strictly lower) than the option set at the opening of the barrier will be profitable. The further away from the barrier from the current price (towards your forecast, of course!), the greater your possible profit. But do not forget - the probability of receiving it also decreases in proportion to the size of the barrier.
The option ends in profit when the price touches/not touch the specified barrier, which can be above or below the opening price.
«One Touch» allows for the same time to earn more than the classic options with fixed expiration. As soon as the price touched the barrier, the transaction is closed and in the binary trading platform, you can open a new one for the profit received. You can also use news strategies when you're more likely to move the price one way after a fundamental event release and additionally and after a one-touch profit you can open «No Touch» against the trend.
Importantly, brokers often do not allow you to set a barrier far from the current price or reduce profits on them to 45%-60%. Beginners should start with the classic types of option and only with the experience to add barrier binary options signals!
Range binary options
- «Boundary Out» - price will be outside the range after expiration. It does not matter how many times the price has been out of range while the option is open, it only matters where the price is at the time it is closed.
- «Boundary In» - reverse options type “Boundary Out” - after expiration of the option, the price will remain within the range.
If in the previous two types touching the barriers didn't matter, in the following it depends on how the option ends:
- «Stays Between» - profit when the price touches the top or bottom barriers during the option;
- «Goes Outside» - the price remains between the barriers (without touching) at any time until the option is closed.
- Turbo binary options (60 seconds). For the most gambling - a unique tool of fast trades and the same instant win. Opening/closing trades at this rate is attractive, but excitement can lead to significant losses.
Important: during the release (see the calendar!) financial news, most brokers for 5-20 minutes before the news and as much of their output block access to the option "60 seconds".
- "Constructor". Probably the most democratic option - there is no fixed profit; the income level is chosen at the opening. Binary options trader profit/risk ratio and all other parameters of the transaction, which will seem to you profitable and suitable for your style of play.
But, there are clear time limits - usually, such a transaction is opened for a minimum of 30 minutes, and a maximum for it is 4-5 hours.
Recommendations about use
- Intraday movement on trading sessions. Do not forget that first of all we work on time, and if there are repetitive movements, it gives a lot of opportunities for how to make money on binary options.
- For Rise/Fall (CALL PUT) options, instruments with periodic strong trends on M5 timeframes and higher are better suited. Trading at smaller intervals is also possible, but the risk of losses also increases. It is better to make sure that there are regular local directed movements lasting at least 5-7 price bars;
- Range and barrier options require high enough volatility, which makes it possible to trade profit fully on the areas of lateral (flat) price movement;
- Reaction to the publication of fundamental news. We look at how the price moves after their release: multidirectional or clearly in one direction, lead fundamental factors to the formation of new trends or not. Statistics of at least 1-2 past years.
- A convenient trading schedule that should be combined with the mode of life. Example: if the bulk of binary options signals are worked out in the Asian session, then for traders living in the European part it is deep night and is not suitable for everyone.
Last recommendation: for any type of option, it is important to choose the right broker. It depends on how quickly the position will open/close and therefore profit.