Types of Binary Options

Binary options, a type of financial instrument, have gained significant popularity over the last decade. These are simple and efficient trading tools with capped risk and capped reward, giving traders the advantage of knowing in advance what they stand to gain or lose.

Since the first binary options were launched, many new varieties have been developed, catering to the needs and preferences of different traders and portfolios. In this article, we will look at some of the different types of binary options and their unique characteristics.

With so many types of binary options available, it’s crucial for traders to research and understand how each works before putting any money at risk. Different types have different risk levels, potential returns, and require different strategies. As always, prospective traders should remember that binary options trading can lead to the loss of the entire capital, so it should never involve more than you can afford to lose.

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A few examples of Binary Option types

Important: Each broker set their own rules for binary options. Always check the terms and conditions for the specific binary option you are interested in. For example, two binary options marketed as “Touch Binary Options” by two different brokers can come with vastly different terms and conditions even though they have been given the same lable. The information below is only general info; you always need to check the terms and conditions with your particular broker to avoid potentially costly pitfalls.

1. High-Low Binary Options

The most common type of binary option is the High-Low option, also known as a Classic Binary Option or Standard Binary Option. The key point is to predict whether the market price will be higher or lower than the current price at the expiry time.

2. Touch/No Touch Binary Options

Touch/No Touch binary options present a target price for traders to aim for. The aim is to predict whether the market will touch or not touch this target before the option expires. The pre-determined profit (the amount of money you will get paid if your prediction is right) depends on how far away the target price is from the current price at purchase since this impacts the odds. For instance, a Touch option where the touch price is very far away from the market price at purchase will typically give a big payout if the price actually reaches the touch price before the option expires.

3. Range (Boundary) Binary Options

Also known as In/Out options, Range Binary Options require traders to predict if the market price will end up inside or outside a predefined range at the time of expiration. The range is typically set with a higher and lower target price. Traders achieve a return if the final price falls within the set boundaries. This option can be great if you have a rough idea about where the asset price is likely to be at a certain point in the future, but can´t pin-point it exactly.

4. Ladder Binary Options

Ladder options are quite similar to high-low options but have multiple target prices and expiry times. Each rung of the ladder presents a different price level and offers a certain payout. Traders receive payouts at each level that the market reaches before expiration. This is a more advanced and complex binary option than the classic one and require a bit more strategy. It is not recommended for novice traders, but can be highly useful once you become a bit more seasoned.

5. One-Touch Binary Options

One-touch options are a type of contract that pays a premium if the price of an underlying market or asset reaches a predetermined target price. Unlike no-touch options, one-touch binary options are useful when a trader believes that the price of an underlying asset will meet or surpass a certain level in the future, but they are unsure about its sustainability over time.

6. Pair Binary Options

Pair options allow traders to speculate on the relative performance of two assets, such as gold versus silver. The trader decides which asset will perform better by the time of expiration. The payout is determined by the difference in price between the two assets rather than the specific value of the asset. This is considered a complex type of speculation, since you are dealing with the market prices of two different assets, e.g. two different commodities. Not all binary options brokers are offering this speciality option, and some who do have a very limited assortment of underlying assets. If you are insterested in Pair Binary Options, you might have to spend some time actively seeking out a broker that has a good offer when it comes to Pair Binary Options.