High / low options are the most commonly used Binary Options. When you buy such a contract, you just speculate whether the price of the underlying asset will be higher or lower than at the moment.
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For example, when the exchange rate EUR/USD is currently 1.31171 and you estimate that the exchange rate will go up, you simply buy a high (call) option. If you think that the price will go down, you buy a low (put) option.
High / low options are the classic Binary Options. There are just two possible outcomes: the price of the asset can be higher or lower than the current price. This is also why these contracts are also called digital options. In the event that you are in the money (your prognosis was correct), you can expect a return between 70% and 85% (depending on the broker). It doesn’t matter if the exchange rate is going down by 100 pips during the holding period. If it later goes up by 101 pips and you bought a high option, you will still make a profit.
Because high / low options are that simple, they have become by far the most popularly traded product at BO brokers.
Example of a High / Low Option
Let’s have a look at an example. The following screenshot (click to enlarge) shows the price of gold:
On the upper left you can read the question: “Will the Gold at 12:30 close Higher or Lower than the current price”? You can answer this question with “High” (the gold price in about 20 minutes will be higher than 1748.621$) or with “Low” (the gold price will be lower than it is currently).
You now have to choose from either “high” or “low”. Then you have to enter an investment amount in the middle of the screen and click on the “buy” button. Directly below the “buy” button you see the return. In this example you would make an 80% return if the price of gold is above the price when you bought that high option.
Above / Below Options
Above / below options are very similar to high / low options. But there is a fundamental difference:
- With the more common high / low options you expect that the asset price will be higher or lower than the current market price
- With above / below options you expect that the asset price will be above (or below) a certain price determined by the broker
Let’s again work with an example (click on the screenshot to enlarge it):
On the left hand side, you see that the current price for crude oil is 92.615. With this above option, you will earn a 220% return if the price of crude oil will increase to at least 92.761 by the end of the contract, which is in 3:10 minutes. Now a 220% return in only three minutes looks very interesting. Keep in mind though that chances that the target price will be reached are small.
Below options work identically, but the other way round: the target price will just be significantly lower than the current market price.
While theoretically you have a 50% chance to win with high / low options, with above / below options that probability is much lower. This might be the reason why these digital options are less popular than the high / low options. Also the selection of assets at brokers is much smaller.
So while the returns with above / below options can be much higher, traders will more often lose their investment, which is demotivating. Due to the higher risk of losing money, such options should therefore be traded with a smaller amount of money.
Benefits of trading higher/lower and above/below binary options
Trading both higher/lower and above /below have a number of benefits over trading regular stock or forex markets. one of the principle advantages is that these options do not require either a stop loss or a take profit target. For this reason the only elements that a trader has to focus on, once the potential profit and loss has been determined, is the expiry time that the option will need to achieve its goal. Once the trade is active the profit and loss cannot be adjusted and there will be no temptation for a trader to change strategy or extend losses in cases where a trade is looking unsuccessful.
Another benefit of these options is that they can be easily applied to all market conditions. The simple higher or lower options described above can be traded in both trending or sideways markets as they do not require price to be necessarily trending strongly in one direction in order to be successful. Again, all these options need is for price to close fractionally higher or lower to provide the trader with returns of up to 85%. Above/below options can be traded during periods of strong trending or volatility when price will have a tendancy to swing powerfully in one direction. These options have a higher level of risk but they are counterbalanced by higher payouts and can be very profitable for those who can interpret when a market will move strongly in one direction.
The benefits of trading binary options have made them very popular investments for many traders, and their simplicity has attracted many new investors to begin trading. Opening a binary options trading account takes two minutes and traders can be experiencing the high profits available from both higher/lower and above/below options as soon as they have registered.