Today there is a wide variety of financial options which offer the trader multiple opportunities to invest in financial markets. Binary options, the most popular type of financial option in recent years, are no an exception and in fact there are many types of such options which vary primarily in the form in which the trades are executed. Most of the brokers that operate with binary options are concentrated in a few types, however in this site we will explain all types in order that the investor accquire a broader outlook on this financial derivative.
To begin, we can say that all financial options can be divided into two basic categories:
- Options that can be exercised before and during maturity.
- Options which can only be exercised at maturity.
In this case, the options which are exercisable before and after maturity, are called American options, while options that can be exercised only at maturity or after this are called European options.
Generally, binary options are classified as Call options or Put options or a combination of both types. In turn, the possible combinations are doubled in number when the call and put options are divided into two general categories mentioned above, ie European and American options.
The kaleidoscope of types of binary options expands further when we add to the list the Barrier options such as the Knock-Outs and Knock-In options. Thus, variable strikes (the price at which the trader will buy the underlying asset in the case of a call option or sell the underlying asset if it is a put option), maturities, barriers and other factors can create an almost unlimited variety of types of options and strategies that the investors can use to trade in the market, which also can be combined to increase their chances of success. It is also possible to combine the binary options with conventional options which provides even more possibilities but for the inexperienced investor this may be too complex at least initially.
Within the category of European options we can include regular binary options (these are the Above/Below binary options offered by all binary options brokers) while in the case of American options, we can include One Touch options (call and put) or Double No Touch options for example. A barrier option that has no Knock-in options or Knock-out characteristics can be considered a simpler One Touch / No Touch. binary option.
It is important to note that the terminology used in the global community of the options may differ not only from one geographical area to another, but also in respect of an underlying asset type to another (for example, in some cases the expiration period in the foreign exchange market is the tenor) and the market in which these options are traded. For example, in some places instead of “Calls” the traders uses the term “Upbets” or instead of “Puts” they use “Downbets”. Another common example is “Rangebet”, which can be used instead of the terms “tunnel” or “corridor”.
In the NYSE Euronext, a long call option with two short calls is called Ladder, while in the SFE the same option is called Christmas tree.
In this way, we can say that a ”Knock Out” option ends or is canceled automatically in the “barrier” or the “strike” in a ”Knock Out” option determines the level against which ultimately the bet wins or loses.
The following is a general classification that includes the main types of binary options, including the most common:
Main Types of Binary Options
- European Binary Options
- Above / Below Binary Options.
- Range Binary Options.
- Eachway Binary Options.
- Range Eachway Binary Options.
- Accumulator Binary Options.
- “Duke of York” Binary Options.
- American Binary Options.
- Touch Binary Options.
- Double Touch/No Touch Binary Options.
- Knock Out Binary Options.
- Knock In Binary Options.
- Binary Options Based on two financial assets.
- Binary Spreads.
- Double Binary Options.
You can learn more about binary options types joining a good binary options forum.