If you are going to be a binary options trader before entering the market, you should be able to distinguish all types of binary options in order to trade those which best meet your expectations.
Usually, beginners start trading “cash-or-nothing” options, but apart from them, there are four types of binary options regularly traded on the markets: “asset-or-nothing,” “no-touch”, “one-touch” and “double one touch”/ “double no-touch”.
Binary options “cash or nothing”. Here, the exercise price corresponds to the asset price when the binary option is subscribed, so what you need to do is simply choose if, at the time of the expiry of option, the asset price will finish higher or lower that price. In short, you have to decide if speculate on the rise or fall (“call” or “put”) based on that price. If your prediction turns out to be correct, you will succeed and earn the stipulated profits. Naturally, the premium amount depends on the terms of the contract, but it usually ranges from 170 to 190% (100% return on investment + 70-90% yield). Otherwise, in case of loss or equal price, some brokers also offer a 10-15% refund for out-of-the-money trades.
Binary options “asset-or-nothing”. The “asset-or-nothing” binary option is the same as “cash-or-nothing” with the only difference being that there is no payoff unless the underlying asset’s price exceeds the strike price. In other words, with an asset-or-nothing call option, the payoff is equal to the asset’s price, as long as the price of the underlying instrument surpasses the strike price. If the asset’s price remains below the strike price, the option expires as valueless.
Binary options “one-touch”. This option requires you to forecast if the price of an underlying asset will reach or exceed a predetermined barrier before the expiry time. Touch options give you the possibility to set the position of the barrier, the expiry time and also the pay-out to be received in the event price reaches the chosen value. Having said that, if your prediction are going to hit the nail on the head you will collect the full pay-out agreed; otherwise, you will lose the full premium paid to the broker.
Binary options “no-touch”. As you are probably thinking, the “No touch” option is the exact opposite to the “One Touch” option. Here, far from predicting if the price of an underlying asset will reach or surpass a predetermined barrier before the expiry time, you have to determine the preset value that the price of an underlying asset will never reach until the option expires.
Binary options “double one-touch” and “double -no-touch”. Double one-touch option as its name suggests operates along the lines of things that we suggested for one-touch option with the only difference being the prediction of not one, but two values that must be reached by the asset’s price before the option’s expiry time. If the price of the underlying asset reaches or surpasses one of two predetermined barrier levels you will collect the full pay-out agreed; otherwise you will lose the full premium paid to the broker. On the contrary, similar to the option “no- touch”, “double no-touch” option requires you to define not only one, but two values that the price of an underlying asset will never reach before the end of the contract.