Binary Options Pips Differential Swing Trading Strategy

Binary Options Pips Differential Swing Trading Strategy

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Binary options, also referred to as "digital" or "all-or-nothing" options, provide the investor with either a fixed payout if the criteria of the option are met or nothing at all. The options are therefore binary in nature because there are only two possible outcomes.

Binary options are defined in terms of a strike price (payout threshold), a maturity date, and an underlying reference unit, commodity, instrument or security price (the underlying). Binaries are sold in exchange for an up front premium payment and both calls and puts are available.
Types of binary options

The two main types are the cash-or-nothing binary option and the asset-or-nothing binary option. The cash-or-nothing binary option pays a fixed amount of cash if the option expires in-the-money while the asset-or-nothing pays the value of the underlying security.

The three other most often used types of binary options: one-touch, no-touch, and double-one-touch/double-no-touch work in a different way.

In a one-touch option, the contract ends as soon as the asset prices reaches a predetermined level. In this case, an investor has to decide 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 the inverse of the one-touch binary option. Rather than the contract ending if the asset price reaches a certain level, the contract is paid out if it expires without that certain level ever having been reached.

In the double-one-touch and double-no-touch binary options, instead of there being just 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.

Where Binary Options are used

Binaries are widely used where the underlying instrument is a commodity, currency, rate, event, or index. The Option buyer can achieve a significant payout based on a small move in a financial instrument as opposed to standard options where the market usually has to shift markedly for there to be a payout.

A binary option is usually priced at the current market and a potential return based on the short-term movement of the financial markets. Options traders have to assess the strike price, the underlying price of the financial instrument and the implied volatility of the underlying financial instrument and decide if there is value in the call or put that they are intending to purchase. Short-term binary options eliminate most of the issues related to standard options with the only basis for a successful trade being
whether the option is above or below your price after a specific time.

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