What are Digital Options?

 

What are Digital Options?

Digital Options is an increasingly popular method of online trading, it is most suitable for traders who wish to make short-term investments on popular financial instruments.

One of the major benefits of trading options is that they are easily utilised by novices and experienced professionals alike, the result being that for many traders their first taste of the financial markets is through options trading.

The benefit of being introduced to trading through options has a number of significant advantages over alternate methods, these include;

  • Faster results
  • Weekend trading
  • Small initial investment
  • Simpler transactions
  • More manageable risk

Most common types of options trading;

Put / Call Options – This type of trading requires a trader predict the direction in which the price of an asset will move over a predetermined time period, relative to the price at the moment of purchase. When it is expected that the price will increase and move upwards, the trader should select the ‘Call’ option, and the reverse is true when a decrease in price is predicted and traders should select the ‘Put’ option instead.

One Touch / No Touch Options – This type of option is less common, although just as effective, traders are expected to predict whether or not the price of an asset will reach a set target price (‘One Touch’) or not (‘No Touch’) before the options expiry time passes. Once a target price has been met, any further movements are inconsequential.

In / Out Options – Essentially the opposite to One Touch / No Touch Options – In this trading variant a trader is expected to predict the limit of a price movement until the expiration time passes (‘In’ Option), or whether the price will in fact breach the limits (‘Out’ Option).

Key Features of Option Trading

Manageable Risk – This is one of the main attractions of trading options, as traders are fully aware of the potential profit and loss before they commence trading. Some platforms even provide strikes rates which grant further control over the trading experience.

Affordable – With options, traders are purchasing contracts instead of assets – this allows for a greater number of participants to access the markets, in circumstances where finances would otherwise be a barrier. The best example of this would be to compare the purchase of 20 shares for $1000 to spending $20 on two trading options (as depicted below)

Example of two deals placed for $10 each.

Higher Profits – In most instances the profits made from trading options far exceed those made by the assets themselves over the same time period, as with options trading profits depend on the correct prediction of price movements, rather than an increase in the actual asset price.

Simplicity – Ultimately options trading is primarily about predicting the direction of an assets price movements, as such only two possibilities are available – put and call (up and down), meaning less experienced traders are able to participate and begin their introduction to the markets in an affordable, user friendly environment.

More comprehensive information on options trading can be found throughout our site, we hope to have imparted some of our passion for trading, and wish you all the greatest success navigating the financial markets.