Touch/No Touch Options Explained

From binaryoption
Jump to navigation Jump to search
Баннер1
  1. Touch/No Touch Options Explained

Touch/No Touch options, also known as One-Touch or Digital options, are a popular derivative trading instrument, particularly within the binary options market. They offer a high-payout potential, but are also considered high-risk. This article provides a comprehensive guide for beginners, explaining the mechanics of Touch/No Touch options, their advantages and disadvantages, trading strategies, risk management, and how they differ from other option types. We will cover everything from the basic definitions to more advanced concepts, equipping you with the knowledge to make informed trading decisions.

What are Touch/No Touch Options?

Unlike standard High/Low options which require the asset price to be *above* or *below* a certain strike price at the *expiry* time, Touch/No Touch options are based on whether the asset price *touches* a specified target price (the ‘barrier’) *at any point* during the option’s lifetime, or *doesn’t touch* it.

  • **Touch Option (also known as One-Touch Option):** The payout is activated if the asset price touches or crosses the specified barrier price *even once* before the expiry time. It doesn’t matter if the price is above or below the barrier initially; a single touch is enough for a payout.
  • **No Touch Option:** The payout is activated only if the asset price *never* touches the specified barrier price during the option’s lifetime. If the price touches the barrier at any point, the option expires worthless.

Essentially, you are betting on whether the price will reach a certain level (Touch) or stay away from it (No Touch) within a defined timeframe.

Key Terminology

Understanding the following terms is crucial for trading Touch/No Touch options:

  • **Asset:** The underlying instrument being traded (e.g., currency pair like EUR/USD, commodity like Gold, stock like Apple).
  • **Barrier Price:** The specific price level that the asset price must touch (Touch option) or must not touch (No Touch option) for the option to payout. The barrier is typically set some distance away from the current market price.
  • **Expiry Time:** The time at which the option contract ends. Expiry times can range from minutes to hours, days, or even weeks.
  • **Payout Percentage:** The percentage of the invested amount that is returned to the trader if the option is successful. Touch/No Touch options generally offer higher payouts than standard High/Low options, reflecting their higher risk. Payouts often range from 70% to 95%, but vary between brokers.
  • **Investment Amount:** The amount of money the trader invests in the option.
  • **Strike Price (sometimes referred to as Spot Price):** The current market price of the asset when the option is purchased. While not directly involved in the payout determination like in standard options, it’s important for understanding market context.
  • **In-the-Money (ITM):** A Touch option is considered ITM if the price has already touched the barrier. A No Touch option is ITM if the price is currently far from the barrier.
  • **Out-of-the-Money (OTM):** A Touch option is OTM if the price has not touched the barrier. A No Touch option is OTM if the price is close to the barrier.

How Touch/No Touch Options Work: An Example

Let's illustrate with an example:

  • **Asset:** EUR/USD
  • **Current Price:** 1.1000
  • **Touch Option:** Barrier Price = 1.1200, Expiry Time = 1 hour, Payout = 80%
  • **No Touch Option:** Barrier Price = 1.0800, Expiry Time = 1 hour, Payout = 80%
    • Touch Option Scenario:**

If the EUR/USD price touches 1.1200 or higher *at any point* during the next hour, the Touch option pays out 80% of the invested amount. If the price never reaches 1.1200 within that hour, the option expires worthless.

    • No Touch Option Scenario:**

If the EUR/USD price *stays below* 1.1200 for the entire hour, the No Touch option pays out 80% of the invested amount. If the price touches 1.0800 or lower even once during that hour, the option expires worthless.

Advantages of Touch/No Touch Options

  • **High Payouts:** Compared to traditional High/Low options, Touch/No Touch options generally offer significantly higher payouts, increasing potential profits.
  • **Faster Profit Potential:** Because only a single touch of the barrier is required for a payout with Touch options, profits can be realized relatively quickly.
  • **Flexibility:** Options are available with varying expiry times, allowing traders to choose contracts that align with their trading strategies and time horizons.
  • **Simplicity:** The concept is straightforward – you're predicting whether a price will or won't reach a specific level.

Disadvantages of Touch/No Touch Options

  • **High Risk:** The higher payout potential comes with increased risk. Even a small, unexpected price movement can result in losing the entire investment.
  • **Barrier Distance:** The barrier price is often set relatively far from the current market price, making it difficult to accurately predict whether it will be touched or not.
  • **Volatility Dependence:** Touch/No Touch options are highly sensitive to market volatility. High volatility increases the probability of the barrier being touched, while low volatility reduces it.
  • **Time Decay:** Like all options, Touch/No Touch options are subject to time decay. As the expiry time approaches, the value of the option decreases, especially if the price is not moving in the desired direction.
  • **Broker Differences:** Payout percentages and barrier settings can vary significantly between brokers, so it’s important to compare offers carefully.

Trading Strategies for Touch/No Touch Options

Several strategies can be employed when trading Touch/No Touch options. Here are a few examples:

  • **Volatility Breakout Strategy (Touch Option):** Identify assets that are expected to experience a significant price breakout due to upcoming news events or fundamental factors. Purchase a Touch option with a barrier price set beyond the expected breakout range. This strategy relies on a sudden, strong price movement. Related concepts: Bollinger Bands, Average True Range (ATR).
  • **Range Trading Strategy (No Touch Option):** Identify assets trading within a well-defined range. Purchase a No Touch option with a barrier price set outside the range. This strategy profits from the asset price remaining within the established range. Related concept: Support and Resistance Levels.
  • **News Trading Strategy (Touch Option):** Anticipate the market reaction to major economic news releases. If a positive news event is expected, purchase a Touch option with a barrier price set above the current market price. Conversely, if a negative news event is expected, purchase a Touch option with a barrier price set below the current market price. Related concept: Economic Calendar.
  • **Trend Following Strategy (Touch Option):** Identify assets exhibiting a strong trend. Purchase a Touch option with a barrier price set in the direction of the trend. This strategy capitalizes on the continuation of the existing trend. Related concepts: Moving Averages, Trendlines.
  • **Straddle/Strangle (Combination):** Simultaneously buy a Touch and a No Touch option with different barrier prices. This strategy profits from significant price movements in either direction. This is a more advanced strategy. Related concept: Options Greeks.

Risk Management for Touch/No Touch Options

Given the high risk associated with Touch/No Touch options, effective risk management is paramount. Here are some key principles:

  • **Invest Only What You Can Afford to Lose:** Never invest more than a small percentage of your trading capital in a single option. A common rule is to risk no more than 1-2% of your capital per trade.
  • **Use Stop-Loss Orders (where available):** Some brokers offer the ability to set stop-loss orders on Touch/No Touch options. This can help limit potential losses if the trade moves against you.
  • **Diversify Your Portfolio:** Don’t put all your eggs in one basket. Spread your investments across different assets and option types.
  • **Understand Market Volatility:** Be aware of the current market volatility and adjust your trading strategy accordingly.
  • **Avoid Overtrading:** Don't feel pressured to trade every opportunity. Wait for high-probability setups that align with your trading plan.
  • **Manage Your Emotions:** Avoid making impulsive decisions based on fear or greed. Stick to your trading plan and remain disciplined.
  • **Capital Allocation:** Determine a fixed capital amount for Touch/No Touch options trading, separate from your general trading funds.
  • **Position Sizing:** Calculate appropriate position sizes based on your risk tolerance and the barrier distance.
  • **Consider using Technical Analysis:** Employ tools such as Fibonacci retracement, Relative Strength Index (RSI), MACD, and Ichimoku Cloud to aid in trade selection.

Touch/No Touch Options vs. Other Option Types

Here’s a comparison of Touch/No Touch options with other common option types:

| Feature | High/Low Option | Touch/No Touch Option | Binary Ladder Option | |---|---|---|---| | **Payout Condition** | Price above/below strike at expiry | Price touches/doesn't touch barrier *at any point* | Price reaches specific levels within the expiry time. | | **Payout Potential** | Moderate | High | Moderate to High | | **Risk Level** | Moderate | High | Moderate | | **Expiry Time** | Typically shorter | Variable | Variable | | **Complexity** | Simple | Moderate | Moderate | | **Primary Strategy** | Directional Prediction | Volatility & Price Range Prediction | Multiple Target Prediction |

Resources and Further Learning



Binary Options Options Trading Technical Analysis Risk Management Trading Strategies Volatility Barrier Option Payout Percentage Expiry Date Financial Markets



Start Trading Now

Sign up at IQ Option (Minimum deposit $10) Open an account at Pocket Option (Minimum deposit $5)

Join Our Community

Subscribe to our Telegram channel @strategybin to receive: ✓ Daily trading signals ✓ Exclusive strategy analysis ✓ Market trend alerts ✓ Educational materials for beginners

Баннер