There are numerous ways to executed a binary option trade, but the first item an investor needs to be aware of is the different styles of binary options available to investors. Binary options are traded as “above or below options” (which are also known as call and put options), “hit or miss options”, range options that are hit or miss options and “one touch options”. All of these types of binary options have pros and cons, but for the most part, they allow a retail investor access to a market that historically has been only available to institutional clients.
The most prevalent type of binary option is the above or below (call or put option). The above or below option give the investor a strike price in which he will speculate as to whether the market will be above or below that level (strike price) or a specific time horizon. Some brokers will create options that have different lengths of time to in which the option expires. In the example below, you can see a broker that offers weekly options on the DAX and the NASDAQ markets. They also offer daily options on numerous products. Most brokers offer a large number of hourly options that are frozen about 15 minutes prior to expiration.
To execute this type of options, (assuming that you have funded an account with the brokers minimal account size), you just need to click on the call or put button to execute the trade. Once the trade is executed, you are locked into a trade that expires at a specific time. Some of the brokers who deal or make markets in binary options do not offer the opportunity for investors to take profits on positions that go their way prior to the expiration of the binary call or put option. For example, if an investor where to execute a Call option on the USD/JPY currency pair at 11 AM EST, when the underlying market was 90 (which for this example is also the strike price), with and expiration time of 3:30 PM EST; and the market moved to 91 by 12 PM EST, the investor would not be able to sell their binary option for a profit. These options are based on an expiration time, and the only way to take some profit is to hedge the risk associated with the trade. Stockpair has a new feature, which allows traders to take profit on their trades. This feature is an excellent tool, and should be something to consider for investors who are trading binary options. The only caveat to this powerful tool is that an investor will have to pay premium to take profit on their position.
Another type of binary option that is available is the one touch option. This binary option has a barrier feature, which allows and investor to receive their profits if the market moves to a particular level (touches a specific level). A broker such as Stockpair offers investors a specific barrier level, as well as, a time to expiration. Some of these options even cover the weekends.
The last type of option that is available to execute is the range hit or miss option. This option gives the investor a specific return if the underlying instrument either hits or misses a range during a period. The execution of this type of option is as simple as executing the call or put options. Some brokers allow traders to draw (or define) the specific range that they are interested in hitting or missing, and the broker in turn calculated the returns that they will pay to the investor.
All of these types of options can be used with numerous types of trading strategies and all of them are simple to execute.