With binary options, you can take advantage of every market environment. Binary options offer you many different sub-types, each of which is perfectly suited for one market environment. You can maximize your profits by understanding all of the binary option types and when to use them.
Binary options offer you these sub-types:
The classic binary options type, high / low options are the easiest binary options to understand. When you invest in a high / low option, you have to predict whether the market will rise or fall over a given period of time. If you are right, you get a payout of up to 90 percent. If you are wrong, you lose your investment.
How far the market rises or falls is unimportant. You will win your option even if the market has moved only the smallest possible margin in the right direction.
The time period for which you make your prediction is called expiry. Expiries usually range from 5 minutes to a few hours, which is much shorter than with conventional assets such as stocks, but far from the shortest expiries binary options have to offer.
Similarly, while making a profit of 90 percent in just a few minutes might seem like a lot, other binary options types offer much higher payouts. High / low options make up for their lower payout with security. With high / low options, you can win a higher percentage of your trades than with any other option type.
With these characteristics, high / low options are the slow-and-steady approach to trading binary options. This is also the reason why most new traders learn high / low options first, and why even most senior traders consider high / low options the foundation of their trading.
High / low options allow you to trade any strategy you like. Because they require only small movements, any strategy that can predict price direction is a good fit for high / low options, although sometimes other binary options types could might make you more money.
Touch options take the basic idea of high / low options one step further. Instead of only having to predict whether the market will rise or fall, touch options also require you to predict how far the market will rise or fall.
Touch options define a target price. You have to predict whether the market can reach this target price before your option expires. In contrast to high / low options, the market does not have to remain at the target price until your option expires. As long as the market touches the target price once, you will win your binary option.
Most brokers use a relatively far away target price, which means that you will win only few of your trades. To make up for the lower winning percentage, touch options offer higher payouts. If you win your option, you can get payouts of up to 500 percent.
Compared to high / low options, touch options involve more risk but also provide higher rewards. If you can deal with the psychological implications of formula, touch options might be a good fit for your personality.
Most traders use touch options in addition to high / low options when they expect a strong movement. To find such strong movements, you can use strategies such as trading breakouts, following trends, or trading important news.
Boundary options are touch options with two target prices. One target price is above the current market price, and one target price is equally far below the current market price.
By adding a second target price, boundary options change the entire mechanics of touch options. Instead of having to predict which direction the price will move in, you are now fine with either direction and can focus on the size of the movement.
While this characteristic makes your prediction easier, it also results in a lower payout. Most brokers offer boundary options with payouts somewhere between high / low options and touch options.
Even with the lower payout, boundary options are ideal to replace touch options in some situations. When important news are scheduled to hit the market, for example, you are often uncertain whether the news will be good or bad. Therefore, you are unsure whether the market will rise or fall in reaction to the news.
With touch options, you would face the dilemma of having to guess the market direction. With boundary options, however, you can take the guess work out of your trading, simply relying on the fact that there will be a strong movement.
Since this is enough to win you your option, the release of scheduled news in one of the opportunities that allows you to almost certainly win a boundary option.
To extend the potential of high / low options on shorter and longer time frames, binary options brokers have introduced 60 seconds options and long term options.
Both work exactly like high / low options, but 60 seconds options offer expiries from 60 seconds to 300 seconds, while long term options usually offer daily, weekly, monthly, and sometimes even yearly expiries.
The most recent addition to the world of binary options, ladder options are high / low options that use a target price other than the current market price. Most brokers allow you to choose from five different price levels.
Ladder options allow you to make unique predictions, for example predicting that the market will close below a target price that is far above the current market price – one of the safest predictions you can make with binary options.
Conversely, predicting that the market will close above a target price that is far above the current market price, is very risky and create a payout of up to 1,500 percent – the highest you can get with binary options.