How to trade touch and no-touch binary options

TradingPub Admin | February 8, 2013

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There are several different ways you can bet on the future prices of assets using binary options, and trading touch and no-touch contracts is one method.

Trading these derivatives involves betting whether or not the underlying asset that serves as the basis for the binary options contract will hit a certain price during a predefined period of time, according to Online Options Trading.

If the bet you make is accurate and the underlying asset reaches the price specified for any period of time, this occurrence will result in you either receiving a significant pre-determined return or losing the original amount you invested, the media outlet reports. Whether or not you realize a gain or incur a loss at this point will be a function of whether or not you picked a touch or no-touch contract.

Binary options - one-touch
Engaging in one of these contracts will entitle you to a payout in the event that the derivatives contract touches the price point specified during the expiry, according to Binary Options Trading 101. Alternatively, if the option does not touch the predetermined price, you will lose the entire amount you invested originally.

Simply put, taking part in one of these contracts can result in only two potential scenarios. You either get a significant return or lose all the principal you put in.

To execute one of these trades, you must predict what the underlying asset you want to bet on will be worth and during what period. For example, you could bet that a barrel of crude oil will break past $100 in the next 24 hours.

The media outlet reports that this type of binary option is frequently used in the event that the contract owner predicts an asset will reach a certain value and is unsure it will stay there.

If you engage in one of these contracts, you determine two price points and if the option reaches either one, you receive a payout. Market participants are likely to use this type of contract when the market for the asset in question is suffering significant fluctuations, according to the news source.

Another instance in which traders frequently use these contracts is when they expect the release of important news such as key economic data to generate price breakouts.

This type of contract is essentially the opposite of a one-touch binary option. If the option does not reach the predetermined price during the expiry period, you will receive a payout.

One instance where you might consider using such a contract is when you think that an option will not appreciate higher than a certain price.

For example, if you think that an ounce of gold will not appreciate beyond $1,800 during a certain period, you might consider taking out a no-touch binary options contract on the precious metal.

It is important to note that if you use a longer expiry, this scenario creates greater risk and therefore comes along with greater reward, Binary Options Online reports. Betting that an ounce of gold will not reach a specific price in the next several days will yield higher returns than betting that this same asset will not hit the barrier in the next 30 minutes.

By engaging in one of these contracts, you are betting that the underlying asset will not rise above one of two specific price points during the expiry, according to Binary Options Trading 101. If one of the price levels is reached or exceeded, you will get the full payout. 

These contracts, which can be referred to as double lock out binary options, are considered to be more intricate than exchange-traded options and are transacted over the counter, the media outlet reports.

If you want more free, quality options trading education, you can find it at TradingPub, which gives you the opportunity to interact with some of the top traders and investors in the industry.