Touch binary options are one of the more advanced types of binary options. Touch options are based on the basic principles of technical, chart-based trading of forex, futures and other financial instruments. The concepts underlying touch options can be easily learned by beginner traders and professionals alike.
Touch options can be of two types – Touch and No Touch options.
What Are Touch Options
In touch and/or no touch options, traders must predict if an asset will touch or not touch pre-defined price targets, at any time before the time of expiration. Price targets are available for both the upside and the downside. These targets are known as “Touch Up”, “Touch Down”, “No Touch Up”, “No Touch Down” price targets.
An investor calculates whether they expect the price to move upwards or downwards from the current level. And based on their estimates, they decide whether the price could reach the “touch up” or “touch down” price targets. Or they could look at the No Touch Option, and the price targets available as the “No Touch Up” and “No Touch Down” price targets, and decide if they expect the price to not touch these levels.
Once the investor has estimated what levels they expect the price to touch/not touch, they can buy the relevant option.
How Do Investors Profit
If an investor predicts correctly, and the price of the asset touches the target price at or before the time of expiration, the trade will be in-the-money. The investor will then receive a pre-determined profit, usually between 75% – 81% of the investment.
Similarly, if the price does not reach the “No Touch” target price at or before the time of expiration, trades in no touch options will expire in the money.