You can make money trading binary options by predicting right the asset direction movement within a specified time.
There are different types of binary options and could vary with different brokers. However we shall discuss the commonest ones.
How to make money trading different types of binary options
As mentioned earlier, Option trading vary with different brokers you trade with however you can make money any way you choose to trade.
In this lesson you shall look at different ways you can make money trading binary options.
1. High/Low, Up/ Down, Above/ Below
When trading high/low,
You only need to predict whether the price of the asset is going to rise or fall within a given time frame for a specific period of time.
It is the simplest and easiest binary option.
If you believe that the underlying asset price is going to rise above the strike price to a certain level before expiration, then place a Call option/High.
Likewise, if you believe that price will fall below the current price to a certain level within the estimated time, then place a Put option.
Brokers usually offer between 60% and 100% payout on this option
Example on Trading High/Low Options
Let’s say you choose to trade, GBP/USD with an assumption that price will rise.
The current price of the pair is at 1.28737 and you believe that price will be above this level after 5 minutes. Broker payout is at 95%
You can choose how much you want to risk on the trade.
If you put for instance, $100, and after 5 minutes the trade closes above the price level 1.28737, you get $195
In other wards, your profit will be $(195 – 100) . So you make a profit of $95 on a single trade.
However, In case price closes below the price level, 1.28737, you will lose $100 you put as your risk.
This simply means when you prediction is right, you get a profit. On contrary, if your prediction goes wrong, you get nothing(loss).
The same applies if you predict that price will fall below the specific level in a specified period of time.
2. One Touch/ No Touch.
On the other hand, if you want to trade one touch or no touch options, you predict that the price of the asset will touch a specific value/price before the end/expiration of the given time.
One Touch / Touch
Price has to touch the price at least once before the expiration time for you to profit the trade.
Unlike in the high low options where you have to choose the direction and the target yourself, in touch options the broker defines the price level of the asset.
Higher or Lower the current price. You just decide whether to buy or sell.
When you feel that the price will touch the predetermined price level above the current price you can go ahead and buy.
If you feel it will fall to that level you can place a put option.
The same goes for no-touch.
Depending on the different brokers, they may use different titles for this option. Some brokers call it touch while others one touch. These all mean the same thing and work in the same way.
The touch option has the highest payout of all.
You can win up to 500% with an average win of 300% of the money you risk as long as the price touches the predetermined price level.
Once you predict right and the price touches the target price just with the very first touch you have already earned yourself a profit.
Only a single touch to the target earns you the money
No- Touch
The no-touch option means that price will not touch the predetermined price level above or below the current price at which you placed your trade .
This usually has the highest payout, sometimes close to 1000% return. Just as the touch option, the broker sets a barrier price.
This means you can risk $50 and earn $500 if the payout is 1000% in that specified time
However, If price touches the barrier price before expiry, you lose the initial investment in this case $50.
Yes, Even if you just taken the trade and price touches the barrier, you lose the trade. Its ‘No Touch’ !
Example on trading a no touch option
Suppose the GBP/USD pair on the no touch binary options.
If the strike/spot price is 1.28737. Price barrier set by broker is +2 pips. In this case, price should not touch the determined level in specified time period.
Let’s you choose 8 hours with and broker payout is 1500%
If you purchase the option , you’re predicting that price will not touch level 1.28757 for the 8 hours
In case your prediction is correct, you will make a profit. So if you had risked $10 you would make $150 profit
However, if price touches the level, you lose the money you had risked on the trade.
Usually the closer the price barrier is to the spot price, the higher the returns. However the harder to predict the movement since price can easily touch barrier being so close.
3. Ladder Option
An option contract that allows the holder to earn a profit as long as the underlying asset market price reaches one or more strike prices before the expiration time.
A ladder trade is not far different from the high low or touch options.
It also requires a trader to predict the correct direction to which price is moving to within the designed time frame.
With ladder options the trade is broken down into predetermined strike prices and expiry time.
This means it involves partial wins and losses till the last trade.
So each time a strike price is reached, a trader within the designed expiration period, takes in a payout.
The holder profits even if the price of the underlying asset returns to a lower level. These partial payouts can add up to 100% or more.
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