Trading binary options is a trend that has been on the rise for some time. Binary options are also known as “all-or-nothing” and “digital” options. They either provide the investor with a fixed payout if the option’s criteria are met, or they pay nothing at all; hence the name binary – there are only two outcomes necessary. This kind of trade is defined in terms of an expiry date, asset, and the payout threshold. When dealing with binary options they can be sold for a premium upfront payment and also both puts and calls. To learn more you should check out brokers like OptionFair or OptionBit. It’s a good idea to begin by creating an account to learn more about this market. The following information will provide you more insight on the basics of binaries.
Binary Option Types
Binary options come in two major kinds, the asset-or-nothing and the cash-or-nothing option. The cash-or-nothing binary offers a fixed cash payout if the option’s criteria is met, while the asset-or-nothing offers a payout that equals a portion of the underlying security.
Aside from these two common types, there are three others you’ll see often. They are no-touch, one-touch, or the double-no-touch/double-one-touch. Each of these binary options works differently, where trading is concerned. Here is a look at these types:
- One-Touch: Once the price of the asset reaches a prearranged level, the contract ends. With this type the investor must decide if the asset price will reach that level while the contract is valid, rather than if the price will end at that level.
- No-Touch: This is the opposite of the one-touch. Instead of the contract expiring when the asset reaches a predetermined level, the contract pays out if that level was never reached.
- Double-no-Touch and Double-one-Touch: Each of these features two predetermined levels, rather than just one. For example, in double-no-touch binary options the asset price cannot touch either of these levels for a payout. Alternatively, the double-one-touch pays out if the asset price matches both predetermined values.
Binary options are commonly used so that the underlying asset is currency, an index, rate, or event. The trader can gain large payouts from very small moves in any financial instrument, where other types of options require large shifts for payout.
In the end, investors looking to trade binary options in Australia should have a good understand of what a binary option is and the methods that are used for trading. Once this information is determined, binaries are good for traders of all skill level and expertise!