Understanding One Touch Binary Options

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Understanding One Touch Binary Options

With the growth in binary options trading, brokers are adding more types of trading to attract investors. One touch binary options are one of these newer features.

They offer high payouts and greater simplicity than stock trading. But are they really that straightforward – and are they suitable for beginners?

If you need a refresher on the basics of binary options, check out our 101 guide.

Otherwise, read on to learn more about one touch binary options.

So what are they?

They’re a way of investing that gives a set payout when the price of your asset hits a specific point.

The benefit of that means that you get to decide what that specific point is, how long you have until it expires, and how much of a payout you’ll receive.

Don’t get too excited though – your broker will probably have limits as to what that specific point can be.

The nature of one touch binary options means you only have to worry about two outcomes. Either your investment hits the trigger point and you collect your payout.

Or you don’t hit that specific point and you lose your premium. That’s the downside to a form of investing that might otherwise sound like magic.

Why might you use one touch binary options?

You might know that the price of your asset will surpass a particular point. But you don’t know that the price will stay at that level.

So you turn to one touch binary options because you’ll be able to capitalize on the price going past that point once.

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The price only needs to exceed your set barrier by the expiration date for you to cash in.

These options are also less expensive than double one touch options, which allow investors to set two separate threshold levels.

You do need to be aware that the chances of winning are lower with these options. There can be a huge difference between price levels, making it more difficult for your asset to surpass your set limit.

But if you get it right, you can definitely take advantage of those higher payouts.

How do they work?

You can buy options whenever you want, but you can only trade during the working week. So that’s Monday to Friday.

Start off by choosing the best broker. You can compare brokers here, but look for one with experience in one touch binary options.

Make a deposit when you’re ready to make your first trade.

Choose an asset that you think will achieve its goal rate. Do your homework and really analyze the assets you can choose from.

Assets can be stocks, indices, commodities, and forex pairs. The last option is volatile in the market so often yield higher payouts.

Invest in your chosen asset – but use small amounts when you’re starting out. Choose the price direction.

Try different strategies until you find a formula that works for you. Once you’ve got the hang of it, you can start investing higher amounts.

Also, check out our guide to the best time to trade binary options.

One-Touch Option

What Is a One-Touch Option?

A one-touch option pays a premium to the holder of the option if the spot rate reaches the strike price at any time prior to option expiration.

Key Takeaways

  • A one-touch option pays a premium to the holder of the option if the spot rate reaches the strike price at any time prior to option expiration.
  • One-touch options are usually less expensive than other exotic or binary options like double one-touch, or barrier options.
  • Derivatives, like one-touch options, are not frequently traded by small investors.

Understanding One-Touch Options

One-touch options allow investors to choose the target price, time to expiration, and the premium to be received when the target price is reached. Compared to vanilla calls and puts, one-touch options allow investors to profit from a simplified yes-or-no market forecast. Only two outcomes are possible with a one-touch option if an investor holds the contract all the way through expiration:

  1. The target price is reached and the trader collects the full premium.
  2. The target price is not reached and the trader loses the amount originally paid to open the trade.

Like regular call and put options, most one-touch option trades can be closed before expiration for a profit or a loss depending on how close the underlying market or asset is to the target price.

One-touch options are useful for traders who believe that the price of an underlying market or asset will meet or breach a certain price level in the future, but who are not certain that price level is sustainable. Because a one-touch option has only a yes-or-no outcome by expiration, it is generally less expensive than other exotic or binary options like double one-touch or barrier options.

Derivatives, like one-touch options, are not frequently traded by small investors. There are some trading venues where they are available, but regulators in Europe and the U.S. have often warned investors that they may be overpriced. In many cases it is not possible to take advantage of that mispricing by becoming an option writer or seller. Binary or exotic derivatives are usually traded by institutions who can negotiate with each other for better pricing.

Outcome #1: Price approaches target price

A trader believes the S&P 500 will rise by 5% at some point over the next 90 days, but is not as certain about how long the index will remain at or above that price. The trader pays $45 per contract to buy one-touch options that pay $100 per contract, if the S&P 500 meets or exceeds that target price at any point over the next 90 days. Assume that two weeks later the S&P 500 has risen 2%, which has increased the value of the position because it is more likely that the index will reach that target price. The trader could choose to sell their one-touch option contracts for a profit or continue to hold the trade through expiration.

Outcome #2: Price remains flat or moves away from target price

Assume that a trader originally believed the S&P 500 would rise 5% over the next 90 days and opened a one-touch option trade to profit from his forecast. The trader paid $45 for one-touch option contracts that will pay $100 per contract if the target price is reached. Instead of rising, the index drops 3% on unexpected news a week later, which makes it less likely that the target price would be reached before the options expire. This trader may then decide to either sell the options and close the trade at a lower price for a loss or hold it in the hopes that the market recovers.

Understanding One-Touch Binary Options

Other than the basic CALL and PUT options, traders can also apply the one-touch binary options strategy. This is a relatively popular strategy among beginner traders.

Understanding One-Touch Binary Options

When trading using one-touch binary options, the trader is required to predict whether the price of an asset will touch a specific strike price prior to the expiration time.

Remember that in the basic Call or Put options trading, you are required to predict whether the price of an asset will close higher or lower than its initial opening price. In one-touch binary options trading, all that is required is for the asset to touch the strike price irrespective of whether the closing price of the asset is lower or higher than its initial price.

How profitable are one-touch binary options?

One-touch binary options have some of the highest payouts. It is common for some brokers to offer a payout of up to 300% or more. However, it is important to note that options that attract such payouts are typically risky.

The fact is it’s not easy to predict whether an asset will touch a specific price point compared to simply predicting whether the price of an asset will go above or fall below a specific strike price.

With one-touch options, you have a better chance of finishing in the money if the strike price provided is within a realistic range depending on the market conditions and price movement.

What to look out for when trading one-touch binary options

Long term and short-term trends can be helpful in determining whether a one-touch strategy is the most profitable to apply at any given time.

Trends are particularly helpful when trading options with expiry times that are one hour or more. Observing long-trends will allow you to determine whether the price of an asset has been on an upward or downward trend.

Trend analysis will enable you to make predictions that are more accurate and therefore increase your chances of profiting from touch options.

Another factor to consider is the typically long expiration times for one-touch options and what this means for your chances of ending the trade in the money.

One-touch options with longer expiry times have a strike price that is much higher than the initial price of the asset. You need to carefully consider whether the asset will touch the price point at least once within that extended period of time.

Finally, the other factor that impacts on touch options is the volatility. Volatility is particularly suitable when trading one-touch options because it nudges the price of an asset upward or downward.

To make the most of volatility, you need to understand the assets you are trading; when you monitor and understand an asset you are better placed to predict whether the price of the asset will likely move upward or downward.

In summary, the greatest advantage of one-touch options is that you only need to predict whether the price of an asset will touch a given strike price at least once within a specified time frame, for you to end the trade in the money.

Be sure to assess the level of volatility as well as short term and long-term trends to determine the possibility of ending in the money with one touch binary options.

Trade One Touch Binary Options with

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