Although most binary options discussed and traded are of one specific type, there are actually a number of different binary options types. Without getting into especially esoteric binary options types, there are five main models binary options might follow: cash-or-nothing, asset-or-nothing, one-touch, no-touch, and double-one-touch/double-no-touch. What is most commonly referenced when speaking of binary options is the cash-or-nothing binary options, but the others may be found in various trading platforms and markets as well.
Cash-or-nothing binary options are the most familiar form of binary options. In this type, a strike price is determined (generally the price of the asset at the time the option is purchased). A contract is then bought for either a Call or a Put, depending on whether the investor thinks the asset will finish above or below the strike price. If the investor was correct when the contract expires, they earn a fixed return, generally between 170% and 200% of the stake. If the investor was incorrect, they lose their stake, or in some cases are given 10% to 15% back.
Asset-or-nothing binary options are, for all intents and purposes, the same as cash-or-nothing binary options, except the payout is determined by the asset price itself, rather than by an arbitrary stake. This can be viewed as the asset actually being paid out, instead of a contract being taken out on the asset, but it is largely a semantic distinction.
A one-touch binary option works in quite a different way from both cash-or-nothing and asset-or-nothing binary options. In a one-touch option, the contract ends the moment the asset prices reaches a predetermined level. In this case, an investor is simply deciding whether or not the asset price will ever reach that level during the duration of the contract, not whether or not it will actually finish at that level.
A no-touch binary option is, as the name suggests, simply the inverse of the one-touch binary option. Rather than the contract triggering if the asset price reaches a certain level, the contract is paid out if it expires without that certain level ever having been reached.
The double-one-touch and double-no-touch binary options are similar to their single counterparts, with one important distinction. Rather than there being only one predetermined level, there are two. In the case of a double-one-touch binary option the asset price must touch on both of those values for the contract to pay out. In the case of a double-no-touch binary option, the asset price must avoid touching either of those levels to pay out.