Binary options are a simple and effective trading tool and although a majority of binary options traded are of one kind of options, there are in fact several models of binary options.
There are five main models of binary options not including a variety of obscure binary options that are rarely traded. The five main binary option models include: 'cash or nothing', 'asset or nothing', 'one touch', 'no-touch', and 'double one touch'/'double no touch'.
The most commonly traded binary options are the 'cash or nothing' but the others can be found in some markets and platforms. Below is a brief explanation of each binary option model:
Cash or Nothing Binary Options
The most commonly traded binary option due to its simplicity and effectiveness as an easy to monitor trading tool. This model sets out a strike/expiry price for an asset. The trader then buys a contract for either 'Call' or 'Put', depending on their estimate of the asset contract expiring above or below the strike price. If the trader is correct they will earn a fixed return of ___% up to ____ % and if the trader was incorrect they would lose their stake. (but receive a ___% rebate/cashback.)
Asset or Nothing Binary Options
Similar to 'cash or nothing' binary options with one distinctive difference; the payout is determined by the price the asset has reached rather than being a fixed and predetermined price.
One-touch Binary Options
A predetermined price level is set for the asset and the contract expires only when the asset reaches that price. All the trader has to do is decide whether the price of the asset will ever reach the predetermined price within the lifetime of the contract and not whether the contract will expire at that price.
No-touch Binary Options
The opposite of one-touch. Here the trader gets a payout if the contract expires without reaching the predetermined price level.
Double-one-touch or Double no-touch Binary Options
The same as one-touch and no-touch binary options, except that here there are two predetermined price levels so in the case of double-one-touch the price of the asset much reach both price levels during the lifetime of the contract and in double-no-touch the asset price must avoid reaching both price levels.