IQ Option have recently added Digital Options to their lineup of financial instruments, giving their operation an entirely new and attractive dimension. Digital options are indeed a lot like binary options: if you hit up one of the popular online trading encyclopedias, you’re likely to find them defined just as such. There are however important differences between the two.
The Differences Between Binary- And Digital Options
The main differences between the two financial instruments concerns the strike-price. Those trading binary options don’t really have to worry about the strike price as a standalone identity: for them, the strike-price is always the current price of the underlying asset. It can obviously be controlled to a certain degree, by waiting for the asset-price to hit a level one is comfortable with, before launching the trade. With digital options, trader control is greatly expanded in this regard. Digital options feature preset strike prices (as many as 22 per option) which traders can choose from. The payouts on these strike prices differ too of course: the less likely it is for an option to end up in the money, the larger the payout it will carry. This way, the payouts on some of these strike-prices can be as high as 900%.
Obviously, not all the available options feature exactly 22 preset strike prices. The number and distribution of the available strike-price levels differs from one option and one asset to another.
Why Are Digital Options More Interesting Than “Traditional” Binary Options
Digital options open up a world of new possibilities for the savvy trader, like the purchasing of several options with the same expiry, for a selection of strike prices. The opportunity to open positions in advance is of course also there. All these “extras” allow traders to manage their risk better, as they’re able to go for smaller profits, with a higher likelihood of success.
Similarities Between Digital Options And “Classic” Binary Options
Binary options as well as digital ones carry fixed risks and rewards. In both cases, traders know exactly how much they’re risking and how much they stand to pocket if their option ends up in the money. The conditions of success are similar as well: to “win” a trade, in both cases, traders need the asset price to end up above (Call trade) or below (Put trade) the strike price, to succeed. Both option types are of the “all or nothing” variety, meaning that in case of success, they pocket the predetermined return, while in case of a loss, their entire investment is lost.
In both cases, traders can elect to sell their options before expiry, recovering some of the money they would’ve ended up losing, or cashing out some of the money they would’ve ended up winning, ahead of time. In the case of digital options, selling is only possible earlier than 20 seconds before expiry-time.
IQ Option’s new digital options are available through the web application as well as through the mobile app offered by the broker.