The binary options market is nothing if not fast moving. Even during the course of writing this book, brokers have come and gone, new products have been launched whilst others have been withdrawn. Moreover the cost of attracting new clients is rising inexorably, and with most binary option clients having a shorter survival rate than those in the more mature forex market, customer retention remains the number one issue for most binary brokers. In addition, in such a hugely competitive market, and with most binary brokers offering white label solutions, the products on offer are generally ‘me too’.
That said, in the last few months binary options on the weather are likely to launch soon adding another dimension to the binary world.Whilst products form the core of the client offering, increasingly social trading is now seen as the way forward, mirroring moves in the forex world, along with client education and better charting packages for greater transparency.
In such a fast moving market it is also no surprise to see forex brokers launch their own products to take advantage of the lucrative opportunities presented by this market.Therefore, in order to follow the structure of the book, let me break binary products up into the two primary groups, namely those offered by off exchange brokers, and those offered by on exchange brokers. However, I must stress these will no doubt change and develop quickly, with new ones being added and less popular ones being withdrawn.
Off Exchange Binary Option Products:Call Up/ Put Down The simplest of all binary options is the up/down proposition. Here the decision is simple. All you are being asked to judge is whether the market will end high or lower by the time the option expires. These options go under several different names, and you may come across them as any of the following:Rise/Fall, Above/Below, High/Low, Call/Put .
If you are right the option closes in the money. If you are wrong at expiry, the option closes out of the money. This type of product is the bread and butter for all off exchange binary options brokers. It is the basis for pure betting on expiry times from seconds to minutes. Longer term timeframes will be offered such as hours, and with these you may have the opportunity to close out early, either to take a profit or to reduce a loss.
One Touch:As its name suggests, this option is designed to trigger if a certain price is hit during the life of the option. The price to be touched may be above or below the current price.If the price specified is touched before expiry, the option expires instantly in the money. If the pricespecified is not touched then the option expires out of the money. A one touch option requires you to correctly forecast both direction and volatility since the one touch price is likely to be some distance from the current market price.
Forecasting price direction within a time frame is difficult enough, adding volatility to the prediction makes it almost impossible. This is why the one touch option is often marketed and promoted as one offering extraordinary returns, up to 500% and even more and the only thing to say here is if an offer sounds to good to be true, then it generally is.
What you will typically discover with this product is the target for the one touch is a significant distance from the underlying market, and when any price move is converted into its equivalent percentage move, then the reality of the option is revealed.This is the reason returns are so high. The probabilities are most definitely not in your favor. These types of options are usually sold as single units with a cash amount, and generally the target is fixed as is the expiry with no facility to close out early.
No Touch:The no touch option is the opposite of the one touch option. In this case the option will expire in the money if the price specified is not touched before expiry. If it is, the option expires worthless. There are some key differences between the one touch and the no touch options which are worth remembering.With a one touch option, the further the strike price is from the market, the greater the potential return. In other words, the probability of the event happening decreases the further away the price is set, and therefore the higher return if it does.
Here again you will find very high potential returns being quoted of 500% or more.The opposite is true for a no touch option. The further away the price is set, the probability of the event not happening increases and the return falls. Or put another way, the closer the trigger to the underlying market, the higher the return.Furthermore, volatility is required for a one touch option to succeed, whilst a benign market with no volatility is required for a no touch option to succeed.