This binary options bet constitutes one of the contracts seen in the binary options market. They are offered to traders on some proprietary trading platforms as well as on the trading platforms of digital options brokers who use the white-label software of Tradologic and Tech Financial Ltd. It is a trading contract with one of the lower elements of risk.
Two varieties of this binary options contract are traded in the market:
a) The conventional touch option
b) The High Yield Touch option
The conventional bet involves making a market prediction on whether the asset will hit a pre-set level or not before expiry. The pre-set price level can either be chosen by the trader (such as is the case on proprietary trading platforms like BOM) or can be set by default on the broker’s trading platform (e.g. on 24Option). The expiry time can be as low as 15 minutes or as high as 7 days.
The High Yield variant of this option has a weekly expiry and pays out a very high yield (up to 500%) on a successful bet. Usually the strike price is set above or below the market level.
Elements of the Binary Touch Options Bet
In order to trade this binary option successfully, some key elements of the bet have to be considered.
a) Touch/No Touch
The strike price can be set to the upside/downside by default, or can be set by the trader. In both cases, the trader must first determine the direction of the bet, and then check for a level where the trending instrument is likely to breach, or fail to breach. Once this has been achieved, the trader must also look at the price action to determine if the expiry set by default will accommodate the asset behavior so as to put the bet in the money.
b) High Yield
The high yield options contract has a weekly expiry and pays a large amount of money on the investment amount, but the strike level is set very far from the market price. It has to take a spectacular move to hit the strike target set on the platform by default. In order to achieve this, not only must the trader get the direction of the asset correct, but the choice of what financial instruments to use for this investment must be spot on. Only investment instruments with the propensity to experience a volatile breakout will stand a chance of achieving the trade target. Forex instruments are good candidates. The High Yield binary option is not an investment for beginners, and indeed, there will only be a few times that a high yield trade will set up nicely for the trader to profit from. Aim to trade when some big investment news is coming from the forex arena.
Examples for this Binary Options Bet
The example to be highlighted below is that of a conventional binary touch option. These are the angles of the trade to be covered:
a) Trading Direction
b) Selection of one of the two options to be used for the bet.
c) Selection of the expiry.
One of the ways direction can be deciphered is by using chart patterns. One of the money-in-the-bank chart patterns is the triangle. In this chart pulled from a forex broker’s platform (which used Autochartist forex plug-ins), we see a daily chart for gold with a symmetrical triangle (bordered by the green upper trend line and blue lower trend line).
The symmetrical triangle has a neutral bias. In this example, the bullish breakout occurred, with the shaded grey area marking the region where the market uptrend is expected to take a breather. It is between this area and the breakout point at the upper trend line that the strike price should be located. Select the price levels as shown.
If you are using a proprietary trading platform that allows you to set a strike, this is how you should trade this binary options trade.
The time frame of the chart used for analysis will determine the expiry to be used. Since this is a daily chart where one candle represents the trading activity for a single day, the expiry should be between 7 – 14 days for the Touch option and 3 days maximum for the No Touch option.