You will find several names for this contract type depending on the broker that you use. The most commonly offered variant is known as the One Touch. This works slightly differently than the classic option type in that rather than simply calling the market higher or lower, you are actually setting a level in the market that you expect the asset price to touch while the contract is live.
Unlike the Higher/ Lower binary contract you will need to be more accurate in your analysis. This is because you will only receive the payout if the level that you select on the contract is actually reached by the asset price while the contract is ‘live’.
This may make it seem more difficult to profit from these contracts, however in reality it gives you great options to shape your strategies. These contacts can be particularly useful when the markets are moving quickly and the level of volatility is high.
While with most options trades you will have to wait for the set expiry time on the contract to be reached to find out if you are going to finish ‘in the money’, with the One Touch contract you receive your payout the instant that the level is touched.
Once this happens the contract terminates and the profit that is due is credited to your account. This means you can make use of this contract in fast moving markets to capture repeated trading profits.
The binary options investor would probably use a technique whereby a contract is opened in the path of the strongest price movement. The expectation would be that the price would continue to move strongly towards the price level selected and therefore result in an ‘in the money’ expiry. Of course if the level is not touched over the time period selected, then the contract will simply expire worthless.
Although not so widely available you can also find the reverse of this contract offered at some brokers. The No Touch trade works in the way that the name suggests. It is the opposite of the Touch trade. Rather than predicting a price level that will be touched, instead you specify a price that won’t be reached while the contract is running.
Here is an example of how you could use the Touch Binary Options Contract:
If the Dow Jones was in a strong uptrend towards its prior resistance level at 13,000 you might place a One Touch contract just below this level 12950. This would payout if the market continued to move higher and the level was ‘touched’ before the contract reached the selected expiry time.