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No-Touch Binary Options Explained
With the no-touch binary option trade, the binary options trader selects a strike price above or below the current market price as well as an expiration time. The broker will offer him a payout percentage corresponding to his selection.
For the investment to payoff, the price of the underlying asset must not reach or exceed the strike price anytime before the option expires.
Payout will vary greatly depending how far away is the strike price and the time till expiration. The further away the strike price, the lower the payout as there is less chance to touch the target. The longer the expiration time, the higher the payout as one has more time and hence more chance to touch the target.
Unlike the common high-low variant where the payout rarely exceed 90%, the payouts for no-touch binary options can easily exceed 100% and payouts between 200% to 500% are not uncommon.
It is entirely up to the trader how much he wishes to invest with each purchase of the no-touch option but the minimum and maximum he can put in with each option varies across brokerages.
No-Touch Binary Option Example
EUR/USD is currently trading at $1.29. A binary options brokerage is offering 50% payout for the no-touch binary option with a strike price of $1.30 that expires in 5 minutes.
After tracking the price movement of EUR/USD for the past hour, the binary option trader believes that the price will not hit $1.30 within the next 5 minutes and decides to invest $100 to purchase this no-touch binary option.
If EUR/USD goes up to $1.30 anytime within the next five minutes, the trader will have lost his initial investment of $100.
However, if the price of EUR/USD never rise to the $1.30 price point during the whole 5 minutes, the investment pays off and the trader earns a profit of 50% of his initial investment, which is $50.
Note that it does not matter whether the price of EUR/USD skyrocketed up to $1.40 or flash crashed below $1.00, both the profit and loss will be fixed at $50 and $100 respectively.
One-Touch Binary Option
Conversely, there is the one-touch variant as well. See One-Touch Binary Options.
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What are the Main Types of Binary Options?
Learn how the One-Touch, No-Touch and Range/Boundary binary options differ from the common high-low viety and how to trade them. [Read on. ]
What Assets can be Traded using Binary Options?
Many of the most popular financial instruments such as currency pairs, equities and commodities are available to trade using binary options. . [Read on. ]
Binary Options: Trading or Gambling?
Is binary option a legitimate financial instrument or just another form of gambling. [Read on. ]
Binary Options & Trading Robots: A Perfect Match?
Unlike humans, robots have no emotion and do not need to rest, so they can make a lot more trades than humanly possible, combined with perfect consistency. [Read on. ]
Is Binary Options Trading a Scam?
Learn how you can get scammed when trading binary options if you are not careful. [Read on. ]
How to Select a Binary Options Broker?
With so many scam brokers out there, before you learn how to trade, one must know how to separate the wheat from the chaff and find a trustworthy binary options brokerage. [Read on. ]
Binary Options: Calculating Breakeven Win-Rate for a Given Payout
How often does my trades need to be successful in order to be consistently profitable in the long run when trading binary options. [Read on. ]
Touch & No Touch Options
When you start trading binary options, you’ll note you have access to several types of instruments. The most common and simplest among them are call and put trades. These are predictions that the price of a trade’s underlying asset will move up or down (respectively). Beginning traders typically start with call/put trades because they’re easy to understand. After they gain some experience, many venture into one touch binary trading.
The above example is from 24Option. The white jagged moving line is the current price point. The light gray section at the top of the chart is the ‘touch’ line. If you were to select ‘touch’ and enter a trade amount and click ‘buy’, all that you have to do is have the price move up and hit that point.
Sometimes called touch or no touch binary options, these trades are slightly more complicated than calls and puts. More than merely predicting the direction an asset’s price will move, you must also predict whether that price will reach a specified target (or strike) price. This will become clearer below as we explain, in detail, how one touch binary options work.
How Touch And No Touch Binary Options Work
As noted, with one touch trading, you are predicting whether an asset’s price will reach a certain level before the trade expires. This level can be above the starting price or below it. Your trade becomes immediately profitable if the target price is reached. The trade is closed and the payout – you’ll know the potential return and corresponding payout ahead of time – is deposited into your account.
We’ll use a simple example to illustrate how this works.
Suppose the underlying asset is gold. The spot price – the price of an ounce at the time you execute the trade – is $1,605 and the strike price is set at $1,620. (Some binary options brokers will let you set the strike price.) Further suppose the trade requires $100 in capital, and pays out $170 if the strike is reached.
Here, your trade is profitable if the price of an ounce of gold reaches $1,620 at any time before the trade expires. Once it hits that price, it no longer matters if the price plummets. It has “touched” the target level, and $170 is added to your account. If the price of gold doesn’t reach $1,620, you’ll lose your investment.
24Option.com “No Touch” Example – You Win If Price Does Not Touch Top Of Light Gray Area
No touch binary trading works in the opposite fashion. You are predicting that the asset’s price will not reach a particular level. As with one touch binary options, the target level can be set above or below the asset’s spot price. (In most cases, you set the level.) Here, if the asset’s price reaches the target before expiry, the trade is immediately unprofitable. You will lose your investment.
To demonstrate, let’s continue with our gold example…
Suppose the spot price is $1,605 and you have set an upper limit of $1,620. With no touch binary trading, this means your trade will be profitable as long as the price of gold remains below $1,620 until expiry. If at any time while the option is active the price of gold hits the target, the trade is closed out of the money.
You can also set a lower limit. For example, you can predict that the price of gold will not fall below $1,590 before the trade expires. This works in the same way as the trade described above, but as a mirror image to it.
Returns And Profit Potential On Touch Binary Trading
When you start to trade one touch binary options, you’ll notice the potential returns grow larger the further away the strike price moves from the spot price. For example, a one touch binary for gold with the spot price at $1,605 and the target price at $1,620 may offer a 70% return. The same trade with the target price set at $1,630 might deliver an 85% return.
Conversely, with no touch binary trading, the further away the target level moves from the spot price, the smaller the return. A no touch trade with gold’s spot price at $1,605 and the target level at $1,620 may return 65% on your investment. If you move the target level out to $1,630, the potential return might fall to 60%.
Basically, the greater the risk of losing your capital, the larger the potential return and profit you stand to gain. Exceptions aside, this is the general rule with all investment vehicles. Thus, when you see a binary options broker offering a high-yield touch option, realize that the risk accompanying the trade is higher.
This page will also cover the potential returns you can expect to see when you trade touch and no touch binaries. And of course,
Getting Started With One Touch Binary Betting
We’ll start by pointing you to several trusted brokers that offer one touch trades. However, 24Option is traditionally the best broker offering these types of trades on a regular basis.
If you already have experience with trading binary options, you’ll likely be comfortable with touch and no touch binary trades. In some ways, these instruments are little more than an extension of simple call/put trades. You’re still predicting the direction in which an asset’s price will move, but are also forecasting the extent of that movement.
If, on the other hand, you are new to binary options, start with calls and puts. They’re simple and elegant from a pure trading perspective. They can be executed and closed quickly – some in 5 minutes – which smooths your learning curve. Along the way, you can take the time to focus on a few preferred assets. Learn about the factors that influence their prices.
Once you have a fair grasp of simple binary options, move into touch and no touch trading. By the time you do so, you’ll be able to make better predictions about the price movements of your chosen assets. That is how successful – i.e. profitable – binary options trades are executed.
4 Reputable Sites To Trade One Touch Binary Options
Although one touch trading is technically considered to be an exotic form of binary options trading, most brokers offer it. The key is to identify three or four brokers you can trust. We recommend registering accounts with a few brokers so you can compare them side by side and ensure you are receiving the best possible returns for each trade. Below, we’ll profile four binary options brokers we’ve found to have great reputations, competitive returns, and a good variety of assets and instrument types.
MarketsWorld – If 24Option is one of the best-regarded brokers in the industry, Markets World is one of the favorites among veteran binary options traders, especially those in the US who have very few brokers to choose from. They maintain an office in New York, are known for their responsive support, and host trades covering a huge list of assets in the four major categories (stocks, currency pairs, commodities, and indices). They also offer free access to a live demo account. Visit Markets World and create an account to start trading one touch options today.
24Option – Arguably one of the best-regarded brokers in the binary options business, 24Option is our top choice for one touch binary trading. They use a top-notch trading platform (OptionFair), offer competitive returns (65% to 350%, depending on the instrument), and maintain a relatively low minimum trade amount ($24). They also provide access to numerous binary option types, including high-low trades, range options, and 60 second binary options. Register an account at 24Option.com today to get started.
IQ Option – We like IQ Option for several reasons. They require a low minimum deposit ($10), which allows new traders to get started easily. They also maintain an impressive list of assets to trade, including 9 commodities, several stocks, and more than a dozen currency pairs. IQ Option uses their own proprietary trading platform, which comes with a feature called Option Builder. This feature allows you to customize your trades, giving you a lot of flexibility to match your trading activity. Visit IQ Option for more details.
Binary Mate – One of the first things you’ll notice at popular US facing broker BinaryMate.com is that the potential returns on their trades are slightly lower than those found elsewhere. The reason is worth considering. This broker provides a 15% rebate on trades that expire out of the money. If you incorporate this feature into your trading activity, it is possible to make more in overall profits than you might elsewhere. Another reason we recommend Binary Mate is because of their asset list. It is one of the largest we’ve found. Visit them today to register your account.
Those who seem to generate the best results with one touch binary trading are traders who have a strong understanding of their chosen assets. If you’re just getting started, here’s what we recommend:
Step 1: Visit the four brokers above.
Step 2: Register an account at each.
Step 3: Get some experience with call and put binary options.
Step 4: Move into touch and no touch trading to expand your profits.
Double No-Touch Option
What Is a Double No-Touch Option?
A double no-touch option is an exotic type of option which gives the holder a specified payout if the underlying asset price remains within a specified range until expiration. The buyer negotiates the price range, called the barrier levels, with the seller. The seller is often a brokerage firm.
The maximum possible loss is the cost of setting up the option. The maximum profit is the negotiated payout amount minus the cost of purchasing the option. Typically, the buyer specifies how much they would like to risk, and the broker provides a percentage payout based on this amount (and other factors) which keeps the structure quite simple.
Double no-touch and the converse, double one-touch, options are both in the binary options category. Binary options have a “yes or no” logic basis. Either they payout the full amount or they pay zero (buyer loses their investment).
- A double no-touch option falls under the binary options trading category, meaning the option has a fixed payout and fixed risk.
- The buyer of the option receives a fixed payout if the price stays within specified price boundaries until expiration.
- If the price touches or exceeds the price boundaries at any time, the trader loses what they paid for the option.
- Since brokers set the payouts and costs of these options, the risk/reward typically favors the broker.
Understanding the Double No-Touch Option
Because they have a “yes or no,” or binary payout, double no-touch options are in the binary options category. They are bets that the underlying asset will not move beyond the barrier levels by a certain date. Because of this structure, they bring an element of gambling into the equation. Indeed, these types of options and their sellers are prone to fraud, which is why many jurisdictions ban these products. The payouts tend to favor the sellers/brokers, not unlike the way gambling games in casinos favor the “house.”
The double no-touch option could be useful if an investor believes the price of an underlying asset will remain range-bound over a specified period. Double no-touch options tend to be offered to binary options traders mainly in the forex (FX) markets.
For example, if the current EUR/USD rate is 1.15, and the trader believes this rate will stay static over the next 15 days, the trader could use a double no-touch option with barriers at 1.10 and 1.20. The investor can profit if the rate does not move beyond either of the two barriers.
The trader could also accomplish the same goal with traditional options by using a short strangle strategy or a short straddle strategy. The advantages of regular options include liquidity, transparency, and minimal counterparty risk.
With most double-no touch options there isn’t actually a cost upfront, rather the trader just decides how much money they want to invest in the option based on the payout the broker is providing. The broker determines the payout based on several factors. They will offer lower payouts if the barrier levels are wider. This is because there is a greater likelihood the levels won’t be touched, which means the buyer receives the payout.
A shorter time frame until expiration will also lower the payout since in a short amount of time the price isn’t likely to move much. If the price doesn’t move much and thus doesn’t reach the barriers, the buyer receives a payout. The more likely it is that the price will stay between the barriers, the lower the payout the buyer will receive from the broker. This is because the broker wants to protect themselves and will, therefore, build their protection into the payouts that they offer.
A double no-touch option is the converse of a double one-touch option. The holder of the one-touch option receives the payout if the price of the underlying asset touches or moves through either of the barrier levels.
Double No-Touch Options Versus Regular Options
As previously mentioned, double no-touch options are not the same as regular or vanilla options. No-touch and all other binary options are primarily over-the-counter instruments. The buyer and seller negotiate the terms, which includes the payoff amount, barrier levels, and expiration date. In practice, no negotiation goes on. The broker provides the terms and the buyer either accepts them or doesn’t trade.
Most binary options result in only two outcomes. The buyer loses what they paid for the option, or they receive a payout. In some cases, the broker may allow the buyer to exit the trade prior to expiry, usually resulting in a partial loss or profit.
Regular options trade on formal exchanges and give the holder the right, but not the obligation, to buy or sell the underlying asset at a specified price by or on a particular date. They also have standardized strike prices, expirations, and contract sizes. This standardization gives them the advantage of liquidity in a secondary market, and more assurances for both the buyer and seller that the trade and exercising, if it occurs, will take place promptly and smoothly.
Regular options tend to be fairly priced based on market conditions, since the price is set by both buyers and sellers. With a double no-touch binary option, everything is set by the broker selling the option, which typically skews the risk/reward in the broker’s favor.
Example of a Double No-Touch Option Trade
Assume a trader is watching the USD/JPY. The current rate is 108.55. The trader believes that the price is likely to stay between 109 and 108 for the next 24 hours.
They purchase a double no-touch option with these barrier levels, expiring in one day, and invests $100. The broker is offering a payout of 50%. That means that if the price stays between 108.999 and 108.001 the buyer will receive $50 (and their $100 back), since the price didn’t touch or exceed the barriers.
If the price touches 109 or above, or 108 or below, the trader loses their $100.
The payout or loss will automatically occur within the trader’s account when the option expires.
A 50% payout may sound very good for a day’s work, yet the trader is risking 100% of their invested capital to only make 50%. Most traders seek to make more on winners than they lose on losers, and this payout is actually the opposite of that goal. The trader will need to win twice for every one loss just to breakeven.
Also, if the payout is higher, such as 80%, that means it is highly unlikely that the price wills stay within the barriers of that contract. The payout is higher, but the chance of receiving the payout will be very low.
No-Touch Binary Options
You will learn about the following concepts
- Introduction to no-touch binary options
- When to use them?
- How no-touch options differ from call/put options/li>
In the previous article of our tutorial, we made you familiar with one-touch binary options. To summarize, the trader chooses an asset and selects the price that the asset is supposed to reach, as well as a specific time frame. If the asset’s price touches the predicted price at least once before the time expires, then the option becomes “in the money” and the trader will collect his/her profit. Now let us take a look at no-touch options.
What Are No Touch Options?
No touch options are the exact opposite of one-touch options. Basically, when you use this instrument, you’re betting your money on the assumption that the asset’s price will not reach a certain level before the time expires. No-touch options are similar to the traditional call/put options, in that you have only two possible outcomes and your profits and losses are fixed.
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When to Use No Touch Options?
Every binary options trader has certain preferences – some of them prefer the simpler call/put options, while others stick to the higher-yielding, but also riskier, touch/no touch binaries. Many traders also use a certain combination of options to build up a more diversified portfolio.
Moreover, apart from the preferences over pure mechanics or payout ratios, the more advanced traders select different binary options, according to changes in market conditions.
We said in the previous article that one-touch options are best purchased when the trader is convinced that the underlying assets price will spike up or down after a period of consolidation, but he is not sure whether it wont retrace back.
In this case, call/put binary options would be a bad choice due to the high chance of the asset reversing its move before the expiry and failing to become “in the money” when it is due.
No-touch options, on the other hand, are commonly purchased at times when the market is expected to consolidate in a narrow trading range – most often this happens after the price has reached a new high or low. Thus, the trader bets that the trading session will be essentially quiet.
Let us assume that you want to purchase a no-touch option on Crude oil. The current price of this asset is $93.45 and the broker offers you a no touch option with a price of $93.60. If oil stays below $93.60 for the specified time period, the option will expire “in the money” and the trader will receive his/her profit. However, if the price rises and hits $93.70 for example, then the option will become “out of the money”, scoring a loss for the trader.
No-touch binary options offer higher return the closer the trigger is. Thus, if oil is trading at $95.00 per barrel, a trigger price of $95.50 will pay out more money than a trigger at $96.00, because the chance of hitting the closer target is higher (the risk for the option to become “out-of-the-money” is greater).
No Touch Binary Options
You have decided to enter into the world of binary options trading. You have found a binary options broker to work with, yet you remain a little confused over the different types of options to go for. They may seem complicated but the principles are relatively simple. The hard decision to make is whether these options are a better way to express your view in the market over traditional spot positions. Once you have become accustomed to the terminology and what they represent, you will understand what they are all about. To save you time, we will cover the main points to consider, not only to extend your knowledge on binary options, but also to determine whether they offer better value over trading the underlying assets in the spot market.
Binary options are a type of option that has two possible payouts, a fixed amount of money, or nothing, zero, loss of initial investment (and no more). Binary options trading has become a popular, and particularly so for those with very little experience in the financial markets. This may be due to the common form of option – high/low, up/down – which is essentially a 50/50 bet on whether the price of an asset will go up or down. These common types of option may seem attractive over straightforward Forex, but as some have found out, they can be costly while offering limited rewards, when a buy or sell in the underlying asset would have returned you greater profit. There are, however, other option types of options which try to capture market moves of a different nature. One such are No Touch Options.
What are no touch options?
If you have already read our introduction to One Touch options, you will have understood the idea that these options pay out a fixed amount when a level is reached. A No Touch option is therefore the opposite and pays out a fixed amount if the underlying does not reach (or touch) a pre determined price level agreed at the outset. In essence, when you use this type of instrument, you are simply ‘betting’ that the price of an asset does not reach a certain level before the end of the contract period or expiry. Like a traditional binary option, there are only two possible outcomes – you either win or lose, but either way, the outcomes are fixed from the outset.
When is the best time to use a no touch option?
Many traders will have have their own preferences for using a certain type of binary option – if at all. Aside from payout ratios, and the pure mechanics (ie set risks and reward), traders will choose to use different binary options according to various market conditions. For example, One touch options will be used when a when a trader is convinced that underlying asset price will go up or down, but are not sure whether prices will hold at their expected levels. In this instance, if you are monitoring your trades, depending on the payout ratio offered, you may be better placed to trade straight forward Forex and set a stop loss equal to the amount of the cost of the option. For comparison, a a call/put option will offer even less value if you believe there is a high chance the asset will reverse before expiry. In this case, the trader will lose the cost off the option price he/she has paid. A No touch option is often chosen when the market is expected to consolidate in a narrow range. This can happen after a sharp move, or over a holiday period. As such, the trader is betting that the trading session will be quiet. However, even in quiet times, sudden news can jolt the market, so No Touch strikes will have to be some way off current market to give you a chance to ‘win’. In this case, the payout percentage will be low, so you have to consider this against a range trading strategy in the spot market, which can be more effective and profitable, especially when considering the price of an option.
Let’s give you an example to better explain what happens.
Say you want to purchase a no touch option on the price of coffee. Currently, the price is $30.45 and your chosen binary options broker has offered a no touch option with a strike price of $30.60. If coffee manages to stay below $30.60 for the specified length of time of the contract, the option will expire and the trader will be in the money, meaning they will receive a payout. Alternatively, if the price rises and manages to hit $30.70, the option price is triggered and (is therefore out of the money) and the trader will suffer a loss as he/she receives no payout and loses the cost of the option price paid.
A No touch binary option offers higher return the closer the trigger (or strike) is placed in relation to the current price. If coffee is trading at $35, a trigger price of $35.50 will pay out more than a trigger of $36.00. This purely down to the fact that the chance of hitting a closer target is higher and therefore the payout is more. In turn, this also means that the risk for the option becoming out of the money (or worthless) is greater too. As attractive as some of the payout rewards may seem, in risk terms, they do not offer great value as the market can cover shorter distances and trigger your option ‘out of the money’ very quickly. Some traders have realised this and have decided that spot trades offer better rewards when using disciplined stops.
As well as No touch option, one can also trade a Double No Touch option – also known as DNTs.
What is a double no touch option?
A Double No Touch option (DNT) is a contract which pays out a set amount when a trader has agreed price of an underlying asset does not reach or touch one or other of two predetermined barrier levels either side of the current market. When you choose this type of option, you pay a premium to your chosen binary options broker based on the barrier levels set and length of expiry. If the price remains inside the set limits over the contract period, payout is received. If not, the maximum amount you lose is the cost of the DNT option.
A Double No Touch option is useful if you believe the price of an underlying asset will stay range-bound over a certain period of time. As popular as they have been among traders in the Forex market, they carry the same risks and limitations to rewards to the ones mentioned above. Sudden movement in price can render them worthless, while a good payout ratio will require narrower limits.
What are the advantages of no touch options?
They are by their nature, simple to use and it does what it says. You do not need to be a financial wizard to understand the terminology or how they work.
If you are convinced that there is a period of time that the market will be quiet, and that price will be contained, then this option type can be useful. Even so, it is advised to keep up to date with global financial news. Reading the latest Forex news sites will keep you aware of data and events.
Good analytic skills are naturally a bonus. If you are convinced that certain levels are strong enough to hold, you can express this through No Touch or Double No Touch options.
Barriers or strike levels which are close can offer great payout offers. However, they are high payouts for a reason.
This leads us to the disadvantages.
In order for the payout reward to be attractive, a trader will require trigger levels which are closer to the market. These, of course carry a greater degree of likelihood of being touched. The option is then worthless.
A trader may also choose to have a wider range of barriers which will have to be set of a longer expiry period. Again, the reward may be attractive, but in this instance, the costs may still be high and you may have to commit more of your funds to purchase this.
More funds used will leave you less to be able to trade other moves or developments in the market. Opportunities present themselves every day. This is where straight forward Forex is the better choice as it offers a trader the opportunity to cut or close the trade and change his view.
Spot trading in the traditional markets therefore offers you much more flexibility and does not tie up your trading funds. Plenty therefore to consider when deciding to use binary options.
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