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Binary options - Types of binary options with a practical examples.
Binary trading offers a very wide range of types of binary options to trade. But do you know what the difference is between the choices on offer?
Binary options - Types of binary options with a practical examples.
Different types of binary options offer different returns and different levels of risk . The loss, however, is always predetermined: it is the full deposit of your investment. Some brokers offer various types of binary options that can be traded. We can find a wide range of types of binary options, but some of them (e.g. short term options, long term options) come from a few basic types. Among the three most popular types of options are:
1) High/Low options 2) Touch options 3) Boundary options (also known as range options)
You can also trade a few other types, but these are not as frequently offered. So if you are interested in one of these types you may need to search a bit to find a specific broker that does offer these types of binary options to trade.
1) Spread options 2) Pair options 3) Ladder options 4) Option Builder.
Brokers also offer the chance to select different expiry times for the types of options that are listed above. There are a very wide range of expiry times available and trades can be executed for anything from 30 to 60 seconds to as long as one month . Although the following are presented as another type of binary option, they are in fact just another classification based upon the time of expiration - all are derived from the High/Low option type. The other most popular ‘types’ of binary options worth mentioning are:
1) Short term options 2) Long term options 3) 60 second binary options.
Generally, all types of options can have their duration set according to the preference or strategy of a trader and, of course, according to what your broker offers.
Some sources also erroneously state that ‘vanilla options’ are a type of binary option. A vanilla option is a different investment tool and has very little in common with binary options. Let’s now look at the different type of binary options we’ve mentioned in a bit more detail.
High/Low options.
This is the most basic type of binary options offered by all brokers on the market. Also known as Up/Down options or Call/Put options , it is considered to be the most popular option type amongst traders.
Traders are trying to predict the direction of movement (Up/Down) of an underlying asset over a predetermined time interval. All processes are based on a very simple question: " Will the price of the asset (X) traded be higher or lower than its current price after the expiry time (Y)? "
The expiry time for each trade varies, depending on the trader’s preferences and their strategy. The trades should be executed for a very short time period – as little as 60 seconds (so-called ‘ 60 second binary options ’), or as long as one month. The return of a High/Low binary option is indicated in a percentage, which is usually within a range of 60-90% of the deposit.
An example how the High/Low options work.
Let’s say you choose to trade a currency pair of EUR/GBP, investing $100. You see that currently the payout is 75% with the trade expiring in one hour .
All that you have to do now is to predict whether the rate of EUR/GBP will go up (Call trade) or will go down (Put trade). Let’s say that you expect that EUR will strengthen against the GBP in the following hour, that means the rate will grow. At 1pm you place a Call trade with the currency market valued at 0.8933.
At 2pm the rate of EUR/GBP has risen to 0.8940, meaning your prediction was correct and the full trade is successful. Since the payout on this trade is 75%, you earn $175 (made up of your deposit of $100 plus a reward of $75).
Traders who incorrectly chose a Put trade for this situation would lose their full investment t of $100). In order for Put trade to be successful and Call trade unsuccessful the price at expiry time would have to be lower than a strike price i.e. 0.8933.
Touch options.
Different brokers may offer different types of touch options. In this sense, we can come across names, such as One touch/No touch options or Double one touch/Double no touch options . Trading touch options are based on a question which can be formulated as follows: " Will the price of the asset X reach (touch) the upper or bottom predetermined price level prior to its expiration time? "
One thing you have to know before you start trading Touch options is that you cannot setup your own upper or lower price level to trade. These prices level are always created by a broker . You should be careful because you have to predict a more accurate scenario of the movement of the asset than you would need if you were trading a simpler High/Low option.
Touch options – in the standard version offered to traders - average returns of around 70%. Some brokers offer so-called High Yield Touch options , where profit could exceed over 300% , depending on a spread of the target price of the asset.
An example of how Touch options work.
Touch options have only a few varieties that can be offered by your broker. In this article we cover here only the basic types from which other versions are derived.
For example, let’s imagine that a currency pair of EUR/GBP is selected as an underlying asset while trading at a rate 0.8934. When you select the asset to trade the broker automatically shows the following numbers:
1) The upper price boundary of 0.8939; 2) Payout as 90% of your deposit; 3) Two choices to trade: ‘Touch’ or ‘No Touch’
Let’s say you believe that the asset has the potential to reach this predetermined upper price boundary within an expiry time of one hour. At 3pm you place a ‘Touch’ order with a deposit of $100 USD.
As you can see in the attached image, in this example the price of currency pair of EUR/GBP breaks the price level of 0.8939 a very short time period after placing the Touch trade. That is the best signal for you that your trade is successful and you will get a payout of $190 (your deposit $100 plus a reward $90) after the option expires.
And even though it doesn't matter that the price is lower (0.8931) than the strike price at its expiration at 4pm, the key factor of a successful Touch trade is that the price broke the price level at expiration .
Boundary options (also known as a ‘Range options’)
This type of option is known as both a Boundary options or a Range options . In Boundary options traders speculate whether the price of the underlying asset will stay IN a predetermined range during the entire life of the trade or OUT of this range.
Boundary options generally have higher returns than most commonly traded High/Low binary options, and can have up to 100% returns. It also presents a suitable opportunity for trading in flat markets when prices stay relatively stale and we can't expect any big swings.
An example of how a Boundary option works.
Using the below illustration for our example, we can see the currency pair EUR/GBP is flat on the market and the broker offers an attractive payout at 95% that will expire at 2:45pm. Let’s say for our example you choose to trade this as a Range option after seeing the price range offered (always created by the broker).
1) 0.8940: the top price boundary 2) 0.8930: the bottom price boundary.
The current price of the asset 0.8935 is placed in the middle of the price range demarcated by top and bottom price levels. Together with the price range you can see two possibilities to trade: IN or OUT.
At 1:45pm you put $100 USD deposit to trade IN when EUR/GBP is trading at 0.8935.

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