There exist different types of binary options. The most popular one is also the one that was first created: High / Low binary options that we presented in the Binary Option Definition article. We are now going to cover the presentation of all the other types of binary options proposed by online brokers (one touch, zone…). For each type of binary option, we will illustrate the way they work with a specific example in order for you to better get the way these options truly operate. Please note that you can also choose from a large range of maturity for each of these binary options types, don’t hesitate to read the article “How to choose your option maturity?” for more information on this subject.
Different types of binary options
HIGH / LOW binary options (also called CALL / PUT)
We already explained the principles of High / Low binary options in the Binary Options Definition article. You basically need to choose if the asset price at the maturity will be above (High) or lower (Low) than the initial price (the “spot” price of the asset at the time you opened the position). If you chose the right direction, you earn the RETURN on your invested amount, if not; you lose your invested amount.
Example of High / Low binary options
The Silver is currently trading at 32.183 USD
- If you select “High”, you have a bullish scenario on the Silver, you think that the silver price will be above 32.183 USD in 15 minutes
- If you select “Low”, you have a bearish scenario on the Silver, you think that the silver price will be below 32.183 USD in 15 minutes
If you select the correct direction (the one that realizes after 15 minutes) you will earn the 75% RETURN on your invested amount. If you invest 50 USD, you earn 37.5 € in only 15 minutes.
One Touch binary options
“One touch” binary options are also becoming very popular among traders in the Commodity and Forex markets. You need to determine if a specific asset will (or will not) Touch (or reach) a pre-determined price. With One Touch option, you have to reach the specific set price that was designated for the asset. Unlike the High / Low binary options, predicting price direction is not enough. In fact, the direction is already chosen for you within the option, as well as a target price. Since you need to determine the direction AND level of the asset price, One touch binary option generate way higher returns than High / Low binary options. They are in fact the type of binary options that can generate the biggest returns (up to 500%).
Example of One Touch binary options
- If you select “Apply”, you have a bearish view on the NASDAQ index and you think that it will at least go down to 3097 (while currently trading at 3183). If the NASDAQ reaches (“touch”) this level at least one time during the next 6 days you generate a 240% return on your invested amount ($500 x 2.40 + 500$ = 1700 $)
- If the NASDAQ never reaches this level, you lose your invested amount.
Zone Binary Options or Boundary options
Zone Binary options creation was inspired by range trading. Some traders often like to identify channel within which the price of an asset tend to fluctuate for a specific period of time. With zone binary options, you can decide to speculate on the fact that an asset price will be within (or out of) a pre-specified range until the maturity of the option.
- If you select the “IN” condition, you have a low volatility scenario for the GBPUSD exchange rate and you believe that the rate will be within 1.57014 and 1.56932 in 10 minutes. If it realizes, you will earn a 60% return on your invested amount. If, not you lose your invested amount but are still entitled to receive the “loss return” amount if the feature is proposed by the broker. (for instance, 24option offers a 15% “loss return” of your invested amount on all binary options)
- If you select the “OUT” condition, you have a high you have volatility scenario for the GBPUSD exchange rate and you believe that the rate will be out of the 1.57014 – 1.56932 range in 10 minutes. If it realizes, you will earn a 60% return on your invested amount. If, not you lose your invested amount but are still entitled to receive the “loss return” amount if the feature is proposed by the broker. (for instance, 24option offers a 15% “loss return” of your invested amount on all binary options)