No-Touch Binary Options Explained

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What You Need To Know About Binary Options Outside the U.S

What Do You Need To Know About Binary Options Outside the U.S?

Binary options let traders profit from price fluctuations in multiple global markets, but it’s important to understand the risks and rewards of these controversial and often-misunderstood financial instruments. Binary options bear little resemblance to traditional options, featuring different payouts, fees, and risks, as well as a unique liquidity structure and investment process.

Binary options traded outside the U.S. are also structured differently than those available on U.S. exchanges. They offer a viable alternative when speculating or hedging but only if the trader fully understands the two potential and opposing outcomes.

The Financial Industry Regulatory Authority (FINRA) summed up regulator skepticism about these exotic instruments, advising investors “to be particularly wary of non-U.S. companies that offer binary options trading platforms. These include trading applications with names that often imply an easy path to riches.” 

Key Takeaways

  • Binary options have a clear expiration date, time, and strike price.
  • Traders profit from price fluctuations in multiple global markets using binary options, though those traded outside the U.S. are structured differently than those available on U.S. exchanges.
  • Non-U.S. binary options typically have a fixed payout and risk, and are offered by individual brokers rather than directly on an exchange.
  • While typical high-low binary options are the most common type of binary option, international brokers typically offer several other types of binaries as well.

Binary options outside the U.S. are an alternative for speculating or hedging but come with advantages and disadvantages. The positives include a known risk and reward, no commissions, innumerable strike prices, and expiry dates. Negatives include non-ownership of the traded asset, little regulatory oversight, and a winning payout that is usually less than the loss on losing trades.

Understanding Binary Options Outside the U.S

What Are Binary Options?

Binary options are deceptively simple to understand, making them a popular choice for low-skilled traders. The most commonly traded instrument is a high-low or fixed-return option that provides access to stocks, indices, commodities, and foreign exchange.

These options have a clearly stated expiration date, time, and strike price. If a trader wagers correctly on the market’s direction and price at the time of expiration, they are paid a fixed return regardless of how much the instrument has moved since the transaction, while an incorrect wager loses the original investment.

The binary options trader buys a call when bullish on a stock, index, commodity, or currency pair, or a put on those instruments when bearish. For a call to make money, the market must trade above the strike price at the expiration time. For a put to make money, the market must trade below the strike price at the expiration time.

The broker discloses the strike price, expiration date, payout, and risk when the trade is first established. For most high-low binary options traded outside the U.S., the strike price is the current price or rate of the underlying financial product. Therefore, the trader is wagering whether the price on the expiration date will be higher or lower than the current price.

Binary Options Outside the US

Foreign Versus U.S. Binary Options

Non-U.S. binary options typically have a fixed payout and risk and are offered by individual brokers rather than directly on an exchange. These brokers profit from the difference between what they pay out on winning trades and what they collect on losing trades. While there are exceptions, these instruments are supposed to be held until expiration in an “all-or-nothing” payout structure.

Foreign brokers are not legally allowed to solicit U.S. residents unless registered with a U.S. regulatory body such as the Securities and Exchange Commission (SEC) or Commodities Futures Trading Commission (CFTC).

The Chicago Board Options Exchange (CBOE) began listing binary options for U.S. residents in 2008.   The SEC regulates the CBOE, which offers investors increased protection compared to over-the-counter markets. Chicago-based Nadex also runs a binary options exchange for U.S. residents, subject to oversight by the CFTC.

These options can be traded at any time, with the rate fluctuating between one and 100, based on the current probability of the position finishing in or out of the money. There is full transparency at all times and the trader can take the profit or loss they see on their screen prior to expiration.

They can also enter as the rate fluctuates, taking advantage of varying risk-to-reward scenarios, or hold until expiration and close the position with the maximum gain or loss documented at the time of entry. Each trade requires a willing buyer and seller because U.S. binary options trade through an exchange, which makes money through a fee that matches counter-parties.

High-Low Binary Option Example

Your analysis indicates the Standard & Poor’s 500 index will rally for the rest of the trading day and you to buy an index call option. It’s currently trading at 1,800 so you’re wagering the index’s price at expiration will be above that number. Since binary options are available for many time frames—from minutes to months away—you choose an expiration time or date that supports your analysis.

You choose an option that expires in 30 minutes, paying out 70% plus your original stake if the S&P 500 is above 1,800 at that time or you lose the entire stake if the S&P 500 is below 1,800. Minimum and maximum investments vary from broker to broker.

Say you invest $100 in the call that expires in 30 minutes. The S&P 500 price at expiration determines whether you make or lose money. The price at expiration may be the last quoted price, or the (bid + ask)/2. Each binary options broker outlines their own expiration price rules.

In this case, assume the last quote on the S&P 500 before expiration was 1,802. Therefore, you make a $70 profit (or 70% of $100) and maintain your original $100 investment. If the price finished below 1,800, you would lose your original $100 investment.

If the price expires exactly on the strike price, it is common for the trader to receive her/his money back with no profit or loss, although brokers may have different rules. The profit and/or original investment is automatically added to the trader’s account when the position is closed.

Other Types of Binary Options

The example above is for a typical high-low binary option—the most common type of binary option—outside the U.S. International brokers will typically offer several other types of binaries as well.

These include “one-touch” options, where the traded instrument needs to touch the strike price just once before expiration to make money. There is a target above and below the current price, so traders can pick which target they believe will be hit before the expiration date/time.

Meanwhile, a “range” binary option allows traders to select a price range the asset will trade within until expiration. A payout is received if price stays within the range, while the investment is lost if it exits the range.

As competition in the binary options space heats up, brokers are offering additional products that boast 50% to 500% payouts. While product structures and requirements may change, the risk and reward is always known at the trade’s outset, allowing the trader to potentially make more on a position than they lose. Of course, an option offering a 500% payout will be structured in such a way that the probability of winning the payout is very low.

Unlike their U.S. counterparts, some foreign brokers allow traders to exit positions before expiration, but most do not. Exiting a trade before expiration typically results in a lower payout (specified by broker) or small loss, but the trader won’t lose their entire investment.

The Upside and Downside

Risk and reward are known in advance, offering a major advantage. There are only two outcomes: win a fixed amount or lose a fixed amount, and there are generally no commissions or fees. They’re simple to use and there’s only one decision to make: Is the underlying asset going up or down?

In addition, there are also no liquidity concerns because the trader doesn’t own the underlying asset and brokers can offer innumerable strike prices and expiration times/dates, which is an attractive feature. The trader can also access multiple asset classes anytime a market is open somewhere in the world.

On the downside, the reward is always less than the risk when playing high-low binary options. As a result, the trader must be right a high percentage of the time to cover inevitable losses.

While payout and risk fluctuate from broker to broker and instrument to instrument, one thing remains constant: losing trades cost the trader more than they can make on winning trades. Other types of binary options may provide payouts where the reward is potentially greater than the risk but the percentage of winning trades will be lower.

What are binary options

Binary options are a great financial instrument and are a great way how to make money on the Internet. It is easy to understand, comprehend and trade.

Binary options are just one of many option types. They are characterized by their simplicity as the value of maximum profit or loss is known to both buyer and seller beforehand. Word „binary“ means that on expiration date buyer gets either predefined profit or nothing at all.

Binary options can be traded on regulated markets but are usually unregulated, traded on Internet and prone to fraud. For example, American Trade Commission issued warning to investors regarding binary options.

Binary option types

The most important factors for every binary option trade type are strike price and time for which the option is considered valid – called expiration time. Investor therefore speculates whether the price of an underlying asset (gold, silver or company stock) at the end of the expiration time (i.e. in 5 minutes or 2 hours) will be higher or lower than at the beginning of the trade.

Almost always this involves call and put binary options.

CALL Binary Option

In this case the trader speculates and hopes the price will rise.

Trader makes a call trade at 12:00 for 1 hour (with 60 minute expiration time at 13:00) with price $1.2 per stock. The trade amount is $100.

Only two possible outcomes:

  • At 13:00 the price is higher than $1.2 (i.e. $1.21 or $1.5) and the option expires IN THE MONEY. Thus the trader makes money. With returns of around 85 % trader could make $185 out of which $100 is the returned amount invested and $85 is pure profit.
    The price is lower than $1.2 (i.e. $1.19 or $0.9) and the trader loses money. The amount invested ($100) is therefore not returned.

PUT Binary Options

In this case the trader speculates on the oposite. That the asset‘s price will drop.

Example:
Trader makes put trade at 15:00 for 1 hour (option with 60 minute expiration time at 16:00) with price $1.2 per stock. The trade amount is $100.

Binary Options Trading Explained

Interested in binary options trading? Want to learn more about it? Want to know how to get started? Want to know about the risks and the strategies? Want to know about binary options trading platforms. Then, this article is exactly right for you!

One of the most popular investment arenas in recent years has been trading the world’s currencies, due primarily to its flexibility, ease of access, and trading software that assimilates mountains of data to guide your every move in the market. Casualty rates for beginners, however, have been high and for good reason. Trading forex is very high risk. A great deal of preparation and practice trading are necessary if one wants to win in this genre. Most newcomers grow impatient, resort to “gut” gambling, and soon lose.

Learning and applying prudent risk and money management principles can be difficult, but the forex market has responded to these issues by offering “binary options”, a new way to play the game with currencies, as well as with stocks, commodities, and indexes. Trading binary options requires an entirely different approach, where much of the “headache” has been removed so that an investor can focus on the moment and directly on the price behavior for his chosen investment vehicle. Your downside risk exposure is “fixed” up front, as well as the amount of your position and your potential payoff.

What are Binary Options?

Binary options are now gaining in popularity more quickly than nearly any other area due to their simplicity. They may go by many names – barrier options, digital options, two-way-options, all-or-nothing options, and fixed-return options, to name a few. A basic definition from Investopedia.com follows:

“A type of option in which the payoff is structured to be either a fixed amount of compensation if the option expires in the money, or nothing at all if the option expires out of the money.”

These options allow the investor an opportunity for instant gains of from 70% to 85%, depending on the investment type offered and the marketing bias of the broker. Investors need only guess the correct direction of the market within a defined time period to cash in, or retain anywhere from zero to 15% of his capital at risk. The simplest form is a pure “high/low” or “Call/Put” bet, but “one-touch”, “no-touch”, and “double-touch” options allow for typical trending and ranging strategies, where technical competence may provide the trader with a competitive edge if he can use his charts and indicators prudently to support his decision making.

For a simple “high/low” example, the guesswork of making a trade has been taken care of for you. You are offered a special screen view of the pricing behavior for your chosen asset for the recent past and asked to predict where it will be at the end of a specified time limit, the “expiration point”. The potential “payoff” is stated on the screen, say 85% for example, and you decide the amount of your position. If you wagered $100 and the price finished in line with your prediction, you win $85 plus your $100 investment. If not, then you may lose $100 or, in some cases, you may receive as much as $15 back.

The other types mentioned above allow for some variation on this basic theme, but you can never lose more than you specify. There is no need for complicated risk management strategies or worries about leverage and its financial implications. There are no margin calls or fees, either. The rules are simple and straightforward, the reason why this type of investing is gaining widespread popularity.

How Do You Execute a Trade?

Binary options require a customized approach, quite unlike the typical Metatrader4 platform or any other general trading support software. Not all brokers offer these instruments because they must first develop a proprietary trading system that has been customized just for this primary task. Thankfully, most binary option brokers have followed a similar theme. Your trading “dashboard” will typically resemble the diagram presented below:

The five steps have been added for clarification purposes to illustrate how easy it is to execute a trade. In this example, the position is for $25, and the potential payoff is $43, the sum of $25 plus $18, or 72%. If you are wrong, then $2.5, or 10%, will be returned to your account. The two arrows on the left give you some sense of what others have predicted, and the pricing behavior chart gives you a basis for making your own prediction of what will transpire by the expiration time chosen in “Step 2”.

Is It a Good Time to Consider Binary Options Trading?

The reason for the apparent popularity of this genre is due to its inherent simplicity. Risk and reward variables are fixed at the outset. There is no need to set protective stop-loss orders or worry about margin calls. Your downside risk is known, based on the amount you choose to wager, and your potential return is also defined when the order is executed. For investment beginners, many of the complexities of risk and money management principles are removed from the investment decision upon execution.

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Is now the time to jump in with both feet? As always, the answer to this question depends on your personal tolerance level for risk and your appraisal of the state of this industry. With each passing month, the number of new broker offerings hitting the market continues to soar. Competition is a good thing since it will improve payout criteria and your odds for winning, but you must educate yourself first and perform the necessary due diligence before choosing your specialized broker. There are many websites that can assist you with this task, and be sure to take a “test run” first by practicing with “free” broker demo systems before risking your personal capital. On this page we give you our list of trusted brokers where you can start binary trading with a demo account.

What Are the Key Factors for Success When Trading Binary Options?

Like any other investment medium, the key factors for success are three in number –

  1. Knowledge
  2. Experience
  3. Emotional control

Newcomers typically fail in the trading arena primary due to the last factor, emotional control. It can be easy to establish a position in the market, but then waver when it comes time to close it, whether it is a winner or loser. The goal is to maximize your “winners” and minimize your “losers”, but, unfortunately, beginners tend to get it the other way around.

Basic binary options remove the threats of emotional intervention, so to speak. The expiration time fixes the endpoint. There is no decision to make. For traders that desire more flexibility, brokers often offer “Rollover” or “Double-Down” features that allow the trader to extend time periods or increase his position if it appears to be a winner, but these decisions require an action on your part. You have time to think about the actions you might take, without changing a thing. You are in control of your position. Your risks only grow if you decide to allow them to do so.

The first two factors can be easily addressed. There are many tutorials, trading guides, and information available on the Internet today to acquire the knowledge necessary to understand and win with binary options. Most brokers take a great deal of pride in the instructional materials that they provide. With competition running so high, every broker wants to provide the best trading experience around, supplying all manner of tools to assist you in the process. Market data, commentaries, and fundamental event calendars are standard offerings in today’s market.

The “middle” key to winning is experience. Seasoned veterans generally swear by their practice regimens. Trading binary options is not the latest form of Internet “gambling” or an amusing video game. You must develop a disciplined approach to the market, utilizing the same analytical skills required in any trading market. Never risk any funds in this market that you cannot afford to lose. Your position sizes should never exceed 2% to 3% of your account value. You will have losing trades. Accept them, and move on. The goal is consistency with “net” gains where winners exceed losers over time.

What Should I Do Now?

If this medium has piqued your interest, then it is time to do some homework. Read up on the topic. Read our article about binary options trading strategy and signals. Study the various offerings of various firms and be sure to perform your own due diligence before selecting one for initial testing. Trading platforms are often proprietary, but easy to understand with online access from the Internet. Brokers tend to be offshore, but there are a few with offices in the United States.

Ever since this OTC mode of investing acquired SEC approval in 2008, brokers and investors have literally leapt into the space, leading to increasing popularity that has only continued without abatement into the current year. A few leaders have emerged, and many firms have added unique “twists” to differentiate themselves from their competitors, but caution is the watchword to keep in mind at all times. Stay focused on your personal objectives. Invest the time practicing with “demo” systems, and, when you feel ready, go slowly at first. No reason to rush, and enjoy the process, too.

Бинарные опционы No-Touch

Если вы уже имеете представление о стандартных бинарных опционах, то вам наверняка интересно будет узнать, какие еще существуют виды сделок в торговых платформах брокеров.

Довольно распространенным видом является No-Touch опцион. Суть его состоит в том, что цена выбранного для инвестирования актива не должна коснуться установленного трейдером уровня до истечения срока экспирации.

Другими словами, трейдер устанавливает верхнюю (или нижнюю) границу, которую не должен пересечь график цены за оговоренное время. Если это условие окажется выполненным, трейдер получает прибыль. Если нет, то его инвестиция оказывается неудачной и большей частью сгорает.

Как вы могли заметить, данный вид опционов имеет обратные условия опциону One Touch, по которому график цены актива, наоборот, должен коснуться обозначенного уровня хотя бы единожды.

Опционы No-Touch рекомендуется использовать для активов с невысоким уровнем волатильности, либо в случае, если присутствует ярко выраженный тренд и можно с высокой степенью вероятности прогнозировать, что цена не поднимется, либо не опустится ниже определенного уровня.

Сделки по условиям No-Touch можно заключать в периоды относительного затишья на рынках, когда наблюдается преимущественно боковое движение.

В целом, данный вид сделок, при условии грамотного анализа, способен обеспечить хороший уровень дохода.

В отличие от опциона One Touch, где трейдер еще до окончания срока экспирации может выиграть сделку, условия No-Touch не предполагают такой возможности. Зато по опциону No-Touch трейдер может понять, что проиграл сделку, до истечения его срока, если график цены коснулся ограничивающей линии. Это позволяет не тратить время на данную сделку и переключиться на анализ новых опционов.

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