| Updated: October 30, 2024You will learn about the following concepts
- What are they and how do they work?
- Trading outside the boundaries
- High-Yield boundary options
- Examples
Another type of binary options, which our tutorial encompasses, are the boundary options. Most of you probably already know that traders can use call/put binaries, touch/no touch options, double touch/no touch options and 60-second binaries. All of these financial tools are pretty similar, but now we will talk about something a little bit different – boundary binary options.
What is a Boundary Binary Option?
When you trade Call/Put options, you need to project what the price of the asset will be at a certain time and date. When it comes to touch/no touch options, you are supposed to predict whether the price of the asset will reach certain price levels, or not. Boundary options provide the trader with the opportunity to speculate, if an asset’s price will stay confined in a certain price range for a period of time.
In short, the trader picks an asset and chooses the expiration time, as well as two price levels – the first one of them is lower than the current price and the other one – higher than the current. If the price of the asset is between these two levels at the expiration time, then the trade will be closed in the money. Respectively, if the price is below the lower barrier or above the higher barrier, then the trade will be closed out of the money.
Trading Outside the Boundaries
When you trade boundary binary options, you can also speculate whether the asset’s price will be out of the predetermined range. The trader once again has to pick a lower and an upper price levels, but in such a situation, the trade will expire in the money, only if the asset’s price is not in the range between the two predetermined price levels at the expiration time.
High-Yield binary options
High-Yield boundary options are offered only by certain brokers and yield a higher-than-usual return. They involve setting two prices as the upper and lower price barriers, which must be touched at least once by the price before the option expires. Because the two trigger levels are set much further apart, these options have a higher return.
Why Boundary Options?
Binary options traders always look for new ways of maximizing their profits and take full advantage of every opportunity to do that. Boundary options provide them with the unique chance to take advantage of the situations in which the market is either very volatile, or its volatility is declining. For example, if a trader sees that the market is becoming very volatile, then the best way to profit from this situation is to trade outside the boundaries. Respectively, if the market is consolidating, then it is a better idea to bet that an asset’s price will stay in a certain range during a period of time.
Example
For example, let us take the USD/EUR currency pair. It is currently trading at 0.7412 and the market is highly volatile. Therefore, the trader speculates that the asset’s price will not stay in a certain range. Let us have a lower level at 0.7408, a higher level at 0.7416, while the expiration time is 24 hours. If in 24 hours the price of the USD/EUR currency pair is below 0.7408 or above 0.7416, then the trade will be closed in the money.