Dukascopy Adds Touch Binary Options
While many brokerage firms are cutting back on, or eliminating altogether, the offering of binary options trading, the Geneva-based bank and Forex brokerage house, Dukascopy, is expanding with the offering of a new trading instrument: touch binary options.
Dukascopy Bank SA offers both individual investors and institutional investors, such as banks and hedge funds, access to trading in the Swiss Foreign Exchange Marketplace. Dukascopy provides its clients with a sophisticated platform for trading Forex, CFDs, and commodities. The firm also offers clients access to a trading desk open 24 hours a day, six days a week, if clients prefer using telephone orders instead of the “one-click” ordering available through its trading platform.
Founded in 2004, Dukascopy provides traditional banking services as well as brokerage services.
Understanding Touch Binary Options
For traders who may be unfamiliar with touch binary options, these are Forex options that involve two option strike prices located equidistant from the market price of the underlying instrument at the time the binary option trade is initiated.
Touch Options Work as Follows
When you initiate a trade, you choose an option strike price - your profit target price level. Simultaneously, the trading system automatically sets an additional target price that is located on the other side of, and an equal distance from, the market price at the time of trade execution.
The second target price essentially represents a stop-loss order.
You set the target price by indicating the distance from the market price at trade execution – for example, a 50-pip distance, which would then cause the system to set the second strike price 50 pips to the other side of the current market price. The strike price for each target price is calculated based on the “ask” price for call (buy) options and based on the “bid” price for put (sell) options.
For example, with Eur/Usd currently trading at 1.1250, a trader might buy a call option with a profit target price of 1.1275. The system then automatically generates the second, stop-loss target price at 1.1225. The touch binary option trade creates a price bracket that extends from 1.1225 to 1.1275, with the current market price of 1.1250 squarely in the centre of the bracket price range.
Such a price bracket is represented in the picture below, bounded by the green line on top and the red line on the bottom.
If price moves outside of the price bracket in the trader’s favour, he or she makes a profit. If price moves outside of the price bracket in the other direction, then the trader suffers a loss. If price remains inside the price bracket throughout the trading day, then the trade is a scratch trade – no profit, no loss.
Certain constraints apply to touch binary options trades, including the maximum and minimum distances that strike price(s) can be from the current market price, and maximum position sizes.
Touch Binary Options – Winning or Losing
Touch binary options ordinarily expire at settlement time at the end of each trading day.
There are three possible outcomes for the trader with a touch binary option, as follows:
- If the market price reaches or goes beyond the profit target strike price chosen by the client at any time prior to expiration, then the option is executed, giving the trader a profit.
- If the stop-loss target price is hit or exceeded any time prior to expiration, then the option is executed at that price, giving the trader a loss.
- If neither target strike price is hit before the option expires, then the option is simply cancelled, with the amount paid for the option returned to the trader. In short, the trade doesn’t result in either a profit or a loss.
Touch binaries provide traders with a simple trading instrument that can be profitably used if the trader can correctly forecast the day’s likely approximate trading range.
Anatol has been writing for our news site for a year and is the newest member of our team. While he’s new to us, he’s certainly not new to trading with over 10 years’ experience being a professional financial journalist and working in the markets.