Different Types of Binary Option Contracts

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Different Types of Binary Option Contracts

Sixty Ninth session of Forex Training

Welcome back to Forex professional training in financial markets.

In this session we will talk about Different Types of Binary Option Contracts.

Although our major focus is on Binary Option, we will also introduce Option in detail.

Binary Types

There are two types of Binary Option: European and American.

European Option

In this Option, traders have to wait until the expiration time of the contract.

The contract can be implemented only if the expiration time has been reached.

American Option

It is the most common type of Option that can be implemented between the start date of the contract and the expiration time.

Different Types of Binary Option Contracts - American and European Types - Call and Put

Binary Option Types

Binary Option providers represent numerous kinds of Binary Option based on their clients demand.

Granted that the simplest types are the most common trading methods.

Binary Options are categorised based on different features.

One category is based on profit/risk rate of a trading type. Consequently, the riskier one inevitably has more catchy profit rate.

Profit of the most popular and simplest ones are between 40% and 80% of the Premium, while the most complex ones may have profit over 500% of the Premium.

The higher strike price you choose on a contract, the higher the amount of profit.

If you choose a ladder type of trading, farther level of strike price is more lucrative rather than the closer level.

The most common category, in which Binary Options are arranged, is based on the movement of strike price during the contract time.

Different Types of Binary Option Contracts - Risk and Payouts - Profit, Strike Price and Premium

Up/Down, Classic High/Low, Call/Put

Known as the easiest and the most prevalent trading type of Binary Option, where trader predicts direction of the price movement from the current price.

If a Call is purchased then the price must go up from the current price at the end of expiration time, so that profit is attained.

The Payout on this type is between 40% and 90%. More gap between strike price and current price, plus unpredictability.

Higher/Lower, Above/Below

Due to its more intricate case rather than Call/Put, the payout on this type of trading is more than 100% of the Premium that even rises to 1200%.

In this kind, trader must determine the strike price (target price).

If the price stands on or crosses the strike price at the end of expiration time, the profit is derived.

For instance, a trader anticipates that the strike price is 25 pips higher than the current price with 1 day expiration time.

If on the expiration time, price stands on or crosses the target price then trader will succeed in their contract.

Different Types of Binary Option Contracts - Above and Below, Higher and Lower, Up and Down

Range, Channel, Tunnel, Boundary, Level

Despite different names, the concept of trading is still the same, traders have to determine a region that price fluctuates inside or outside.

This type is divided into two type: an Inside Range (In-Range) and an Outside Range (Out-Range).

 In-Range

Considering that an asset has a monotonic motion, trader may speculate that a contract with 1 week expiration time would be successful.

An area, with higher and lower edge price from the current price, must be specified.

If at the expiration time, price does not cross boundaries of the defined area, then a trader gains profit, otherwise they would lose the Premium and the deal.

While some Binary Option providers permit traders to select high and low boundaries of the region, others represent a predefined edge of the area that price must move within.

Area with tighter borders leads to higher amount of Payout, from 10% to 600%.

Different Types of Binary Option Contracts - Target Price at Expiration Expiry Date - In Range Type

Out-Range

Unlike In-Range type, price must cross the boundary of specified area and stay outside of the region at the expiration time.

This kind is lucrative on highly volatile assets, especially when there would be an efficacious event or announcement during the contract time.

Payout of this type would be from 50% to 700% based on the gap between the edge prices, plus subsequent results from a key pertinent meeting during the contract.

Ladder

Ladder is one of the most recent types, represented by providers such as IGMarkets and GOptions.

Different Types of Binary Option Contracts - Pair and No Touch - Ladder Payouts and Premium

Strike prices (Target price) with different levels and various payout amounts can be represented in predefined rates, otherwise traders can specify the levels and rates.

Undoubtedly, the closer rates have less Payout rather than farther levels.

To derive specified profit from the contract, price must cross and leave behind the given level at the end of expiration.

It may resemble the resistance and support levels of an asset, however, expiration time must be considered as well.

Pivot points are beneficial when a trader asks to deal a contract on this type.

Payout would be from 60% to 400% touched by the level value plus expiration time.

Touch

This kind of contract has one or two price levels, which determine the success or failure of a deal.

Following subtypes clarifies the contract conditions that must have been fulfilled for a profitable deal.

One Touch

Price must at least reach the strike price once before the expiration time.

It does not matter if the price crosses or touches the strike price multiple times, the profit is achieved from this contract.

No Touch

If the strike price is touched or met even once throughout the duration of the contract, trader will lose the deal and, consequently, the Premium.

Different Types of Binary Option Contracts - One and No Touch - Rollover and Out-Range

Double One Touch

It is similar to One Touch method, however, there are two strike price, one higher than the current price and the other one is lower.

Even if the price hits any of the strike prices during the contract time, deal would be successful for the trader.

Double No Touch

Unlike Double One Touch, Price must never meet the strike prices, which are above and below the current price, during the contract.

Even one hit of any strike levels causes the contract loss.

Price Action technique, explained in Forex Trading section, is useful when trader is dealing with this form of contract.

Payout would be 30% to 480% mostly affected by the strike and current price gap.

Pair Option

A rare method of trading Binary Option in which trader must compare two independent assets and specify which one would have a higher price change on an equal contract time.

Payout of Pair Option model is from 50% to 90%.

That concludes this session, until next time and another session take care.

Linkages & Notices

You can also view the video of this session available on the PFOREX Financial Video tutorials.

You can also find the video of this session on PFOREX YouTube Channel.

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The PDF file of this session is also available.


PFOREX Educational materials in text and video formats are developed by PFOREX Department of Education to enhance and improve investors’ knowledge and trading skills. Due to high risks and volatile fluctuations in financial markets, traders and investors must develop their trading skills and knowledge. It is strongly recommended to apply Risk and Capital Management when trading in financial market.

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  • Rank
    Forex Broker Name
    Regulation
    Min Deposit
    Max Leverage
  • 1
    CySEC, FCA
    $500
    1:500
  • 2
    FinaCom, FSA
    $10
    1:1000
  • 3
    $1
    1:3000
  • 4
    FCA, ASIC
    $1
    1:500
  • 5
    ASIC, BaFin, CNMV, CONSOB, CySEC, FCA, MiFID
    $5
    1:888
  • Rank
    Binary Name
    Regulation
    Min Deposit
    Max Return
  • 1
    $10
    85%
  • 2
    $250
    83%
  • 3
    CySEC
    $250
    89%
  • 4
    FMRRC
    $50
    86%
  • 5
    $1
    83.5%

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