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  One Touch Options
  A detailed introduction to trading in binary one touch options, options about the touching of price limits.

One touch options predict the touching of certain price limits upward or downward, in case of a touch the trader wins. But what happens to the rate subsequently is irrelevant for the success, thus it can also change direction again. However a one touch option always anticipates a certain direction as only the touching of a predetermined price limit – above or below – triggers the win of the option.

Pfeil grün The mechanics of one touch options

As with any binary option the trader initially chooses an asset and speculates on its future development, meaning on a rising or falling rate. Assets can be indices, shares, currency pairings or commodities. In contrast to the up or down option (call or put, also called Call/Put option) correct prediction of the rate direction does not suffice for winning, additionally a particular price limit along that direction must be touched once (one touch). This appears to be more difficult than merely predicting a rising or falling rate, however the one touch option has another decisive advantage: if the rate only touches the price limit and then reverts, the trader still has won. And that, as experienced traders know, occurs in practice quite frequently.
With classic derivatives these price limits, that can be well anticipated by the trader, are used to trigger limit sale orders for profit taking. More often though traders follow the rate with trailing stops and this process is rather arduous and requires continuous monitoring of the market. With binary one touch options the trader is freed from this task. A one touch option represents the opposite of the no touch option where the respective price limit must not be touched, but it is not the opposite of a range or boundary option as this only requires the rate to end up within the predetermined range but in the meantime may well touch price limits.

Pfeil grün Tradability of binary one touch options

One touch options put high demands on speculative thinking and precise market evaluation, which are rewarded by some brokers with quite extraordinary returns. Returns of around 500 percent may be possible if the expected event – the touching of a predetermined upper or lower price limit – is achieved just once. How high the one touch option will be calculated depends here on the length of the term, if it spans a weekend, and the initial value.
For example a 500 percent return can be awarded if a currency pairing reaches a certain price limit over the course of the coming week or within a week including a weekend. With a shorter option term, such as only 24 hours or a few days without weekend, and if the base value represents for instance an index or a share, awarded returns may be lower. These subconditions must be inspected with the particular broker; they are always subject to change. 
This has always been this way, with classic derivatives too issuers change for instance the spread (difference between buying and selling price), at times quite significantly, which means that issuers and brokers reward high risks with high returns. With binary one touch options the risk is composed twofold: the trader must predict the direction and determine a price limit. Novices are even advised to rather avoid this binary option as the twofold estimation of the market indeed presents quite a challenge.

Pfeil grün One touch options: Trading against the broker?

Not all brokers even offer binary one touch options, those who do restrict them usually to fewer assets than other binary options. Often commodities or currency pairings are offered as underlyings, which basically increases the profit chances as these values often are subject to higher volatility. However this wide fluctuation range can also reduce the chances of the trader if the rate moves from the beginning consistently in the wrong direction. After all success is only achieved if the rate at least once touches the predetermined price limit, and thus puts the binary option in the money. Incidentally account is rendered immediately upon reaching the price limit; however payout takes place only at term end. This is simply due to the technical processing on the broker’s side.
One touch options are offered in their special variants with the opposite event, the no touch. Here the objective is for the rate to not touch the determined price limit. If this however does occur, the trader is out of the money and has lost with the no touch option.

Because of the challenges posed by one touch options one might get the impression that the trader is betting “against the broker”. In reality however brokers do not risk being “beaten” by the trader, instead they hedge against the trader’s win by assuming, in an automated way, the opposite position and basically benefit from the spread, meaning the price difference between buy and sale. Fees also contribute significantly to the broker’s profits, as does the existing liquidity in traders’ accounts which can always be invested safely with interest. The exact business model is however not known (after all in part trading takes place without spread and fees), but it is really not of interest to the trader. Crucial is the fact that brokers are not smarter than traders. Otherwise they would be traders not brokers.

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