There are numerous types of binary options offered by brokers for trading: Touch options and No-Touch options, traditional medium-term up/down options offered by all brokers, KIKO options by the broker Stockpair, ladder options and much more.
Every trader must answer the same questions: “Which of the options are the best for trading? Why choose a broker based on the type of options and expiry time?” In our today’s article, we are going to explore in depth digital options, which is, in fact, nothing else than a fancy name for ladder options.
Digital binary options by IQ Options
This is a type of options in which the trader determines the strike price, which is the key to the achievement of the potential profit. Same as the ladder binary options, digital options (btw. IQ Option is the only broker in the market to offer this type of options) are somewhat more complicated to understand than other types of options. Therefore I will do my best to explain this in simple terms. Let’s start with a picture.
The picture shows the concept of digital options trading. The trader again speculates over the future price development, same as with normal binary options. This time the strike price is not limited. Therefore, the trader can choose which one he or she wants to use.
How do the digital options work?
Let’s take one more look at the picture. What we can see is the following:
- The current price of the asset in the picture is 1.12625
- The prices on the left hand side are as follows: 1.1267, 1.1266, 1.1265 etc.
- When you click on the different price buttons, a different percentages (your profit) shows up
When trading digital options, it is the trader who selects from a few pre-set strike prices the one he or she wishes to use. Speculations are over the final price (…is it going to be higher or lower than the strike price?). The current closing price of a trade predetermines the future profit from the trade.
The example in the picture shows the way it all works. (Though the picture depicts LADDER options, in reality the process is the same).
Let’s assume that the picture is a real graph. After opening a trade worth $100 upward (shown on the ladder on the right) we can see that the profit grows proportionally with the risk. We will earn more if we believe that the price is in a strong uptrend and, before reaching the expiry date, has grown much higher.
Video: Trading of digital options
I am going to outsmart them!
Some of you may say: “Well, I am going to set the lowest strike price there is, because the chances that the price falls so low are minimal! This way I will never lose!”
Well, you are right. BUT…you must take into account that with nearly 100% certainty to win, the final profit will not be breathtaking. A trade like this may generate a profit of around 5%. This means that your profit from a USD 100 investment will be merely USD 5. Given that what you put at stake is worth USD 100, this does not appear to be fair.
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Advantages of this type of binary options
- With digital options you can achieve astronomic returns (more than 300% profit)
- Using reasonable judgement with a little luck in some cases you cannot lose (supposing you use efficient hedging)
- Unlike ladder options offered by other traders, with digital options from IQ Option you can sell the option within the expiry time to either boost the profit (in case of a successful trade) or moderate the loss (in case of bad luck).
Disadvantages of this type of binary options
- On the other hand, highly rated options are highly risky.
- This type of trading is more difficult to comprehend. Therefore it is not suitable for novices.
- Official statements about digital options: https://blog.iqoption.com/en/digital-options-introducing-a-new-trading-tool/
- Review of IQ Option
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