Binary Touch Options
Categorized as exotic options, binary touch trading options or BTO are among the easiest investment strategies that traders use. Despite the simplicity, they are extremely powerful and let you earn ample amounts of money. What makes them even better is that risk is limited, and so they are widely preferred by individuals who have an investment in the forex market.
A BTO provides you with great leverage and complete information about profits and losses that can arise in future. Similar to vanilla trading options, these options require you to pay an upfront price to the person who is selling the option. Buying the option will let you earn at a fixed payout provided that certain conditions are met before the expiration time is over. Generally, this condition is just that trade on the underlying assets must be at a specific level during the time the position is open. The payout is dependent on this level which is also termed as the spot rate level, barrier or trigger.
Binary Touch trading options have become fairly popular in forex markets, largely because of the attractive high yields that are associated with them. The profits range can be as 500%, which can take your winnings to a really high level.
Types of Options
There are two main types of BTOs: one touch and no touch options. The former binary trading style generates a payout when the underlying assets reach the specified trigger level before they expire. The latter binary trading style generates a payout when the asset under consideration fails in reaching the specified trigger level.
Assuming a spot 1.4400, some examples related to binary options are given below.
One Touch Binary Option
Suppose you believe that the EUR/USD will move to a trigger value of 1.4100 in a particular forex market in the next two weeks. As such, you decide to purchase an option that is specified by a payout of EUR 50,000. This option is available at an offer price of almost 35% of the expected payout amount, which is the standard way to express price associated with any financial instruments like currency pairs, stocks and indices. In order to secure yourself, you will have to pay the upfront price of EUR 50,000 x 0.35, which equals EUR 17,500.
If your predictions go wrong, and the currency pair does not reach 1.4100 within the next two weeks, you will not be awarded any payout and will have to bear a loss equal to the price you paid i.e. of EUR 17,500. On the other hand, if you predict correctly and the specified trigger values trades in the market before the expiration period is over, you will receive EUR 50,000 as payout amount, providing you with a profit of EUR 32,500.
Please note that in this trading style, you can determine all profits and losses beforehand. As such you can also figure out your risk and reward before you start trading.
No Touch Binary Option
Assume that EUR/USD spot will maintain a spot below 1.4500 for the next three weeks. Since you are interested in making a trade, you decide to buy a binary option that offers a payout of three weeks. The trigger rate is 1.45-000 and the expiry period is three weeks. You can buy this option if you agree to pay the 15% offer price. As such, you will have to pay an upfront amount of EUR 10,000 x 0.15, which is EUR 1,500.
Now assume that the spot reaches 1.4500 in the next three weeks. This will have the option triggered, and you will not be given any payout. Additionally, you will also have to bear the loss of EUR 1500 which you paid as the upfront price. Contrary to this, your analysis is correct and the spot does not trade at 1.4500, you will enjoy EUR 10,000 as payout, and your profits will rise by EUR 8500.
Binary touch options provide you with numerous benefits in terms of limited losses which you are already aware of before trading. Your profits are also automatically booked and if need arises, you can sell or buy a trade before it expires. This provides you with more flexibility and gives you a chance to avail your profits earlier or minimize your losses before they fully strike, which ensures that your investment remains secure to a certain extent.