As the binary options markets have grown, so have the demands and requirements of traders. Experienced clients asked for options that were similar to the traditional Rise / Fall binary options, but could trade with volume and volatility in the market. Brokers were also keen to offer a product that could be traded in both flat and highly volatile markets. From here, the “Touch / No Touch” options were born, allowing limited risk trades on volume and volatility.
Touch options detailed
The ‘binary’ element of the One Touch option remains, as does the limited risk. To be able to complete a “Touch” option; the asset value must touch, or go beyond, the barrier (or ‘target’) level at least once before the expiration of the option .
A “no touch” option represents the opposite – the asset value will not touch the barrier level (or ‘target’) at any point prior to expiration.
In most cases, the handicap level is determined by the broker. However, with certain brokers, the trader can set the barrier. It may be higher than the current asset value, or it may be lower. The distance between the current asset value and the strike price will usually determine the payout structure. These images represent successful Touch and No Touch trades;
An important difference with the Touch option is that it can end up ‘in the money’ before the expiry time. If the Touch target is met, the option pays out immediately, regardless of what happens to the asset value afterwards.
Broker differences
Traders wishing to use Touch Options should pay particular attention to their choice of trader. First, some brokers don’t offer it at all. Touch options at certain other brokers are not very flexible. Neither are the target levels. However, there are some brokers that offer a great amount of flexibility. Here traders can set their own target levels (payouts adjust accordingly). This provides a tremendous opportunity to use advanced trading techniques. Setting touch options at different intervals to control risks and returns can ensure a trading advantage. Traders can also set targets above and below the current value by creating ‘tunnel’ options.
When to use Touch Options
Advanced traders will be able to successfully use One Touch options throughout their trading day, others may specialize. For example, volume and volatility in the market can be expected to change significantly after a particular data report or event. Similarly, a market can be flat for a period from time to time and with an announcement, and then be volatile. If a trader believes that trading volume will be particularly low, or particularly high, then the Touch option can allow them to take a position on the view.
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