Types Of Digital Options
There are actually several different types of trades available when trading digital options. Though there are several different trade types, the asset price movement will remain the determining factor of whether or not the trader has made the correct prediction and earned or lost money. What different trade types provide is different outlets that may be used to reduce risk while increasing profit potential.
Widely considered the most basic type of digital options trade is the Up/Down trade. This type may also be referred to as High/Low or Over/Under. In a Up/Down trade, the trader has only two prediction options. One would be to predict that the asset value will be above the strike price at the end of the expiry time. The other would be to predict that the asset value will be below the strike price at the end of the expiry time. Predictions of an increase will be Call options. Predictions of a decrease will be Put options.
With some trade types, specific assets may provide better profit potential. However, any underlying asset may be a fine choice when using a Up/Down trade. The price of the asset selected needs only to be in movement, hopefully moving in the predicted direction so that it ends above or below the strike price when the expiry time has passed. Up/Down trades are often used in conjunction with Hedging strategies. Hedging is the process of purchasing both the put and call options so that some profit is earned from either outcome.
One Touch / No Touch Trades
One touch trades relate to the need for the asset to “touch” or reach a predicted price point prior to the expiration of the trade time. The trade begins with the strike price and touch price being known. From there, the trader will predict whether the asset price will move either up or down and touch the designated price point. Should this occur at any point during the live trade time, the trade immediately ends with the trader profiting.
There is a variation of this trade, which is the No Touch. In this trade type the strike and touch price are also known in advance. The difference here is that the asset price must not touch the designated price while the trade is live. No Touch trades cannot end early, as the entire time period must complete in order to determine whether or not the asset price did or did not touch the designated set price.
One touch trades work best with digital options assets that are in movement. Stocks and currency pairs work well in One Touch trades. No Touch trades work best when more stable assets such as commodities are selected. Touch and No Touch are often used in conjunction with Bullish or Bearish strategies. Bullish market conditions denote active trading conditions, while Bearish market conditions tend to be sluggish. These can be strong indicators that can render accurate prediction easier.
Boundary and Range Trades
These types are the same as No Touch trades. The only difference is the name. Different brokers simply refer to these trades using different names. These require the asset price to remain within a specific boundary or range during the contract expiry time in order for the digital options trader to profit. When using these trade types, stable assets that exhibit little movement are the best selection.
The Boundary strategy is of course an excellent method to use with these trade types. This strategy involves determining predictable boundaries within which the asset value rarely breaks out of. Knowing in advance what typical asset performance is will be beneficial in not only this type of binary options trade, but other trade types as well. Research and analysis will be required in order to determine common boundaries for each underlying asset.
Additional Trade Features
Many digital options brokers are now offering new features that can be used to increase profits. Take Profit is one of these. This feature allows traders to close a trade early should they wish. This would of course only be done if the asset value is moving in the predicted direction. Early closure will not result in the trader earning the full profit percentage. However, this option can be used to lock in a certain amount of profit and prevent a total loss of the investment amount should the asset begin to move in the direction that was not predicted.
Roll Over is an equally attractive option. Roll Over allows the trader to extend the expiry time period should it seem that the trade will not end in his or her favor. A premium does need to be paid in order to take advantage of the Roll Over feature. Should the binary options trade end in favor of the trader, this premium may seem insignificant. However, should the trade end in a loss, both the premium paid plus the initial investment amount are lost.
Each of these digital options trade types are available to all traders. Additional features such as Take Profit and Roll Over will only be available to those who partner with a broker who offers them. Trade types may be labeled differently by each broker. However, even novice traders should be able to quickly identify a basic trade type and make use of it according to what specific benefits it offers.