Many binary options brokers offer one or more exotic trades. Knowing how to trades these with better results—particularly the high yield variety—will help you to increase your profit rates over time. There are two types of exotic trades that are used far more often than others: the one touch trade and the boundary trade.
As always, don’t forget that trading binary options can be very risky, and even with a strong strategy on your side, it is still possible to lose all of your trading capital. Our goal is to help you to overcome some of this uncertainty so that you have a better chance of making money over the long run. Practicing with a demo account will help you to smooth out the bumps before you risk real money.
Boundary Binary Options
With boundary trades, you will ultimately be choosing whether you believe the asset’s price will end IN the given range or OUT of it. With a high yield trade, the range will typically be large, and you will not be able to take a trade out that allows you to choose to stay IN the range. For high yield trades, only OUT options are available.
This type of trade requires two different things to happen in order for you to be successful with them. One, there needs to be a lot of fast movement on the asset. Prices should be moving much more quickly than they normally do. Two, the price needs to stay out of the given range until the expiry.
If you want to be successful with this type of trade, you need to be able to discern whether or not your asset of choice will meet the two criteria. The higher the rate of return that you are given, the more worthwhile the trade will be, but the more difficult the range is likely to be to surpass.
To figure out when you should use boundary trades, you will need a chart, preferably looking at a timeframe more than five times as large as the time before expiry. For example, if you have an expiry that is one hour away, you should be looking at a price chart that shows at least five hours of data. Next, figure out whether the range has been broken in the past. If there is a history of boundary breaches, then the trade is more likely to be successful. Next, look into the future and see if there is any hope of the boundary being breached again. If the Fed, for example, has an announcement coming up, then that announcement could push the asset out of range. Combine all these factors and then estimate a likelihood of the required volatility occurring. If that outweighs your profits (this will be discussed below), then the trade is worthwhile.
One Touch Binary Options
Comparatively, one touch options are slightly easier to be correct with than boundary options. Because of the fact that the asset’s price only needs to touch the price once at any point during the life of the trade, you are simply evaluating whether or not this is possible. Volatility trending toward the given direction is the best way to determine this or not. Technical indicators that reveal this data will be your friend, here. Concepts like Bollinger Bands and Average True Range are strong methods of determining this.
Next, be sure that you are using strong charting tools and have followed the steps listed for boundary trades. Are there any events upcoming that could influence prices in your direction? This is a powerful tool at your disposal, so use it.
Strong volatility is a helpful tool, but the price still is subject to the general rules that the asset follows. This is why knowing a lot about the fundamentals of your asset in question and its history is a must here. Most binary options traders ignore these things often, but with one touch trades, they are very important.
Finally, be sure that you have enough time to achieve your goal. If you are expected a 10 percent change in price in 15 minutes, you are unlikely to ever be successful. If you are expecting a 1 percent change by the end of the trading day, and you followed all of the proper steps, this is far more likely.
A Final Word on High Yield Trades
In general, you will be wrong far more often than you are right when you are trading high yield binary options. This doesn’t mean that they cannot be the right choice, though. In order to be successful, you need to have a firm understanding of risk management. There’s a simple way to figure this out, which we will go over here. You need to know your rate of return and your expected rate of success. Let’s illustrate this with a quick example.
If you have a one touch trade on the EUR/USD that returns a 300 percent rate of return, you need to be able to be correct more than 25 percent of the time. If you risk $100, you will have $400 returned to you—your original $100 and $300 in profit. If you are correct 26 times out of 100, you will have made $7,800, and lost $7,400. That’s a profit of $400 over this period of time. Your goal then is to look at your rate of return and figure out how often you need to be correct in order to be successful. If that is possible given the difficulty of the trade, then the trade is worthwhile. If not, the trade should be avoided. Over time, you will learn to refine this skill a bit better. Using a binary options demo account will help you quite a bit in the practice department. As a general rule, the higher the rate of return, the less often you need to be correct for this to work. Brokers will typically make the goal harder to hit when rates are higher, meaning higher degrees of volatility are needed for your trading to be successful.
As you may have noticed, we have operated under the assumption that brokers will not post high yield trades unless they feel that they have an advantage. Most of the time, this is true, and they should be avoided thanks to that. Occasionally, you will find that this is not the case, and these are the instances where you should execute the high yield trades. You will still be wrong more often than not, but if you are calculating the odds of success correctly, then you will stand a better chance of generating a profit over time.