The most commonly used Binary Options trading is the call and put method but there are also other methods of trading that will be explained below.
If you choose the Up option, you predict that the asset price will be increased after a set time. The price of the asset at the expiration time must be higher than the strike price, or the initial price during bidding, for it to be profitable.
Example: You foresee that EUR/USD will be higher than its current price of 1.1100 at 4:00 p.m. that day and select the “Up” option. You bid $150 and stand to generate up to 90% return, which amounts to $285.
At 4:00 p.m., if the asset price is higher than 1.1100, you will earn a $285 payout. But if the asset price is lower than 1.1100, your initial $150 deposit will be lost.
The down option is chosen if you forecast the asset price to be lower than the strike price at the expiration time. For this option to be profitable, the asset price must be lower than its initial bidding price.
Example: The ‘Down’ option is selected as you predict the EUR/USD will be lower than 1.1100 at 3:30 p.m. today. You bid an amount of $100 with a 90% return at the accurate prediction.
At 3:30 p.m. today, you will either receive a payout of $190 if EUR/USD is lower than 1.1100 or lose the initial $100 deposit if the price is above 1.1100.
Traders enjoy an advantage in Binary Options as the fixed risk and return of the trade are fully disclosed upfront, helping them to make informed decisions. The loss sustained in a trade will always be the initial deposited amount and the potential payout is also known beforehand with the disclosed fixed return.
This method can be described as the range or boundary options as the objective is to predict if the asset price at expiration will fall within or outside a set price boundary or range.
Example: At the moment, the USD/JPY currency exchange is priced at 103.50. Your prediction is that the price of the currency pair will fall between 103.00 and 104.00 by the end of the day. At the time of expiration, if the price falls within the set range, the trade will be profitable.
For the Out option, the objective is to predict that the asset price will expire outside of the previously set parameters.
Example: Referencing the example above, you foresee that the currency pair price will fall outside the boundary of 103.00 and 104.00 by the end of the day. The prediction is that the currency pair will trade outside the range of 103.00 and 104.00 before the day ends. If the currency pair trades above or below the set price range at the expiration time, the trade will be profitable.
Touch, or one-touch, trading is the prediction of whether an asset price will reach a previously specified level during the trading period. Traders can set the price level at above or below the initial price. The trade will be immediately profitable if the asset price reaches the previously set level at any time during trade.
Example: The strike price (the current market price of an ounce) for gold is $1,510 and your set target price is at $1,520. The deposited capital is $100 with a payout of $190 if the asset hits the target price.
If the gold’s price increases to $1,520 at any time during the trading period, your trade will be profitable. The only requirement for a profitable trade is if the asset price ‘touched’ your price target; it will not matter if the price fluctuates before the trade expires. Your deposit will be lost if the asset price does not reach the $1,520 target at all during the period.
No-Touch trading is the prediction that an asset will not reach a certain level. For this option, the target price can be set above or below the strike price, similar to the one-touch option. But for this option, the objective is to predict that the asset price will not touch the target price before the time of expiration. If the asset price touches the target price, you will lose your capital.
Example: The strike price for gold is $1,510 and your prediction is that the price will not rise above $1,520 before the expiration time. You then select the no-touch option with the upper limit of $1,520. If the asset price rises to your target level, you will lose your capital.
Example: You predict that the price of gold will not drop below $1,500 and selects the no-touch option with a lower limit of $1,500. If the asset price remains above $1,500 until expiration time, your trade will be profitable.