Despite the simple nature of binary options trading, there are a growing number of order types available to meet the demands of individual traders. When binary options first started rising in popularity a few years ago, there was just one type of trade on the table – the High/Low trade. While still the most popular of all binary options due to availability and easy implementation, more complex trades based on trigger points and price relationships are now available from many brokers.
High and low options are commonly grouped under the category of cash-or-nothing options, because at the end of the expiry period the investor will either receive a cash payout or nothing. High/Low or Call/Put trades are based on a single decision, with the trader asking the following question of themselves before making a trade.
“Do I think asset X will rise or fall in value before the trade expiry time?”
If you believe the asset will rise in value before the expiry period, you simply pick ‘High’ on your trading platform. This ‘High’ option may also be called an ‘Up’ or ‘Call’ option depending on the broker you use. If you believe the asset will drop in value before the expiry period, you simply choose the ‘Low’ option, also known as ‘Down’ or ‘Put’. While the decision itself is digital in nature and therefore easy to implement, an analysis period still needs to take place if you want your trading to be more than a form of betting.
Because High/Low binary options are digital by their very definition, it can be easy to neglect the important ‘expiry time’ variable. While some brokers only allow a set expiry time, a growing number of operators have made it easy for traders to set their own expiry time per trade. While this time period can vary widely, for the majority of High/Low trades it will range from five minutes to a few hours. Even though long term trading has become more popular in the world of binary options, intra-day trading is still followed by the majority of investors.
One Touch/No Touch
One Touch trading is an exciting expansion of simple Up/Down binary options, with traders looking at a specific point on a chart rather than a simple direction. With One Touch trading, traders have to ask themselves a slightly different question, making their decision based on a trigger point while still taking the expiry time into account.
“Do I think asset X will reach trigger point Y before the trade expiry time?”
The trigger point can be located anywhere on the chart, with more distant price points coming with higher potential payout amounts. For example, if you think a significant news event is likely to move price in a big way within an hour period, you may choose to make a One Touch trade that will payout if price reaches your trigger point.
It’s important to note the extra risk associated with One Touch trades, however, with the probability of success smaller than High/Low trades in most situations. While lots of investors are attracted to One Touch trades due to the higher payout potential, like most things in life, there’s no such thing as a free lunch. In addition to One Touch options, some brokers may also offer variation trades such as No Touch, Double One Touch, and Double No Touch, some of which are more complex and involving multiple values.
Boundary options, also known as Range options, are a type of Double No Touch trade that utilise the concept of channel trading. One of the first things you learn in technical analysis is the likelihood or not that price will trade within a defined range determined by support and resistance. With a Boundary option, the trader has to ask themselves whether price is likely to stay within a defined range before the expiry time.
“Do I think asset X will remained untouched by upper trigger point A and lower trigger point B before the trade expiry time?”
Being a binary option, there are only two ways this trade can go. If price remains within the channel defined by your two trigger points, you win the trade. If either of the triggers above or below is hit, however, you lose. While Boundary options are not as popular as common High/Low options, they do allow traders to operate easier in flat market conditions. In situations where regular options and trigger point trades are likely to prove fruitless, Range trading can provide a unique opportunity for profit.
Time Based Trades
While all binary options involve a time element, specific time periods have become increasingly popular over the last couple of years. For example, most binary options brokers now provide 60 second trades, both as High/Low and One Touch variations. As you can imagine, the excitement of this kind of trading is second to none, with traders simply having to hold their position for one minute before they know if they’ve won or lost. Some brokers also offer two and three minute options, for those traders who like to give the market a bit more time to breathe.
“Do I think asset X will follow a certain direction or reach a specific trigger point within a defined period of time?”
Super-fast options are not for everyone, however, with long term trades also enjoying a surge in popularity. While the vast majority of binary options traders are attracted to the short time frames of intra-day trading, long term trading can be a great alternative. Some markets are well known for their noisy short term movements, with particularly liquid assets like currency notoriously difficult to predict in the short term. Long term options allow investors to access more reliable long term data, while also providing the breathing room necessary for novice traders and people experimenting with new trading systems.
Ladder trades are another new addition to the world of binary options, with only a few brokers currently providing this type of trade. Ladder trades typically involve a series of triggers or ladders, with partial profits available over a series of price intervals. In many ways, Ladder trades are a step away from the digital world of binary options, with partial payouts available to hedge against the common ‘all or nothing’ scenario. With a range of strike prices and expiry times, however, the complexity of Ladder trades is not for the faint of heart.
“Do I think asset X will reach strike points A, B, and C within expiry times F, G, and H?”
If regular trading utilises a smooth stream of price and time data, and binary options simplify this data into two discrete intervals, Ladder trades can be seen as a quantisation of price and time based on user input. While a winning trade can add up to much more than 100 percent due to profits made on a number of separate levels, novice traders would be best advised to stay away from Ladder options until they have mastered regular Up/Down and Trigger trades.
As the name would suggest, Pair options involve the relationship between two different financial assets. Instead of trading on naked price, Pair options allow investors to make decisions based on the relationship between prices. Pair options are often traded using fundamental analysis, with investors using existing fundamental relationships and news announcements as a way to make decisions. StockPair was the first broker to offer this type of binary option, with a number of other brokers recently adding Pair trades to their arsenal.
“Do I think asset X will outperform asset Y before the trade expiry period?”
For example, if you think Facebook shares are going to fall on the back of an announcement by Google, you can make a Pair options trade that Google will outperform Facebook before the trade expiry period. It doesn’t matter if both assets rise or fall following the announcement, what matters is the relationship between the assets at the expiry point. If Google do outperform Facebook, you win, and if they don’t, you lose. Pair options are another example of how binary options can be traded in all conditions regardless of the underlying market environment.