Although they are classified as exotic options, Binary Touch Options, or BTOs are considered powerful, yet simple investment products; especially for the price. Such options can provide a good deal of leverage and full understanding about potential loss and profit; thus making them great even for beginners. Yet still, it’s important to learn about trading these options before you decide it’s the right move for you. The following will provide you with the basic mechanics of this type of trading, which will help before you check out OptionBit or Banc de Binary to connect with brokers or to learn price news from the industry.
An Introduction to BTOs
Much like vanilla options, BTOs require the buyer to pay a price upfront to the option seller. The option buyer will only receive their fixed payout when specific conditions are met during the duration of the option. This “condition” is simply that the underlying spot rate must, or must not trade at an agreed-upon level during the time which the option is open. The spot rate level for the binary’s payout is dependent on what is called the barrier or trigger.
BTOs are differentiated into two types: The “No Touch” and the “One Touch”
No Touch Option ~ This type will lead to the payout price being generated if the trigger level is not reached during the option’s lifespan; from creation to expiry.
One Touch Option ~ Here a payout is generated if the trigger is reached by the fundamental spot rate at any point of the option’s lifespan; in other words from creation to expiry.
Advantages of BTOs
Much like Forex, trading these kinds of binary options is easy, so there are many advantages to entering this market. The first reason these contracts can make a good asset is because all potential risk, loss, and profit is known before the trading occurs. Moreover, traders can decide which strategy to use based on beliefs that either certain levels will be reached, or they will not. The same approach is used when trading spot, but BTOs guarantee that profit is booked automatically and losses are limited. So, what this means is this kind of trading requires little management.
Hence, for the price it is great, as the features you are provided with give you options that are both transparent and simple. With that being said, one final advantage to these options is that even an option that’s been sold can be purchased back before the expiry time. What this means is that the investor has even more flexibility, as he can cut losses or take profit before the options are triggered or expire.
In the end, if you are working with a fixed price and want options that are transparent, then BTOs are the perfect choice for you!