There are several different types of binary options brokers. Here we will explore the various leading platforms and describe how their offerings differ and why those differences may matter to traders around the world. We categorize the main types of platforms into three classifications: plain european style, range bounded, and touch / no touch.
Plain European Style Contracts
What many people don’t know about binary options brokers is that they are effectively selling contracts that are effectively identical from the retail trader’s perspective to European style option contracts. For those that are only used to American style option offers, European contracts differ in one major way: the only time the contract can be exercised is at expiration. Fans of American style trading would be more used to being able to exercise their right to buy or sell the underlying security at any time prior to expiration. That said, binaries trade differently from normal European contracts in three principal ways: binaries are much shorter duration, pay a pre-determined high yield, and the owner of the position never actually takes an ownership position in the underlying stock or asset.
Range Bounded or Barrier
Another sub-set of the broader types of binary options brokers offers range bounded or barrier-based assets. While the previously mentioned European style assets are effectively one-sided (stock price ends either above or below a pre-determined target – or strike – price), a bounded asset will have two-sides. A trader then has the opportunity to select whether their preference as to whether they would prefer to own the interior range (between prices A and B), or the exterior (outside the zone between A and B). Otherwise the contracts trade effectively the same: high yield, short duration (measured in minutes, hours, or days), and no actual ownership position at expiration.
Touch / No-Touch
A third type of offering from some binary options brokers is the touch / no-touch contract. This is a hybrid approach to trading binary options that may (depending on the brokers used) be a derivative of a range bounded contract or a European one. The twist on this type of offer is that the investor does not have to wait for expiration to come to find out if the asset will land in the money or not. If a price target (strike price) is hit during the length of the contract (rather than at expiration), the asset is considered in the money regardless of any price activity that happens after the strike price has been hit. These assets have been found to be attractive to a number of investors more accustomed to the way American or US options trading works. The caveat is that the target prices tend to be a little higher than investors might get when looking at one of the previously mentioned types of offers.