One of the leading online platforms nowadays is IQ Option. It attracts traders from all over the world, and it cares about its clients by making the platform clear and transparent. IQ Option constantly improves its services and introduces new functionalities. You will find binary and digital options in the offer. And today we will talk about the similarities and differences between them.
Introduction to the options
There are many types of financial instruments. An option is one of them. The value of the option depends strictly on the value of the underlying instrument.
You can either buy or sell an option. But it does not mean you become the owner of the underlying instrument. Buying and selling options signify that you make the prediction about the future price of the underlying asset.
If your forecast was correct, you would gain a profit. Usually, it will be a percentage of the amount you have invested.
In case you were wrong, you would lose. Your loss will be equal to the amount you put on this particular trade.
IQ Option offers the possibility of exiting the position ahead of time. If you see the market is not going in the favourable direction and you are definitely not going to win, you can close the option before its expiry. This will let you lose less than the whole invested amount.
Specification of binary options
Binary options are sometimes called high-low options. You have to decide will the price of the asset go up or down. The moment you open a position indicates the strike price which is equal to the current asset price.
You will see two colourful buttons on the IQ Option platform. If your speculation is that the price will be higher at the time your option expires, you hit the green “Higher” button. If you think the price will be lower in the future, you must click the red “Lower” button.
You choose the expiration time the moment you enter the trade. It can be as short as 1 minute or as long as 1 month.
The payout is fixed and is evaluated as the percentage of the amount you have invested in the trade. It varies for different assets and is dependent on the volatility of the market. Also, expiration time influences the payout rate.
Specification of digital options
The potential of the binary option and the underlying asset’s price escalation are brought together in the digital options trading. The main rule is the same that is you have to speculate on the direction of the price in the future. But the payout is not fixed. It depends on the extent to which the price changes in relation to the strike price.
The payout will be bigger when you choose strike price far away from the current market price. It gives you a possibility to gain up to even 900% investment return.
IQ Option offers fixed expiration times for digital options and they are 1 minute, 5 minutes and 15 minutes.
Binary options and digital options similarities
The strike price is the price of the underlying asset at the moment you buy or sell an option. In both, binary and digital options trading your task is to decide whether the price will reach a higher or lower level than the strike price when the transaction ends.
The expiration times are fixed in binary and digital options as well. When the preset expiration time is completed, the transaction will be closed automatically. In both cases, you will see the red vertical line which marks the expiration time.
Binary options and digital options differences
You have to make an assumption about the future price direction. However, in binary options trading, this is all that matters, will the price will go up or down from the current market price, while in digital options trading there is an additional factor. And, this factor is how far the strike price is set.
The expiration times for binary and digital options are different. You can choose the expiration time from 1 minute to 1 month for binary options and for digital options you have three possibilities to choose from: 1 minute, 5 minutes or 15 minutes.
Then, we have the return. It is fixed when you are trading binary options. You know exactly how high the profit you can earn when you enter the trade. Moreover, you know how much you can lose as you cannot lose more than the investment amount. The situation is different when you are trading digital options. The return is not fixed and it changes according to the price movements and chosen strike price.
How to trade binary options on the IQ Option platform
Log in to your IQ Option account. Set the Japanese candlestick type of chart. Click on the plus sign (1) at the top to access the list of available assets on the platform. Then, click on “Binary” (2) and all the instruments will be visible. There are currently 26 assets you can choose from.
Conduct the analysis of the market and when you are ready, choose the expiration time for your trade (1). Then, write the amount of money you are ready to invest in this particular transaction (2). The last thing is to decide on the future price direction. If you suspect the price will rise, click on the green button. In the opposite case, choose the red “Lower” button.
How to trade digital options on the IQ Option platform
The beginning is the same. You must be logged in and the chart type should be set for the Japanese candlesticks. Now you click on the plus sign but instead of the binary options, you select digital options. The list of 14 financial instruments available for digital options trading will appear. Choose the one you favour.
Similarly to the binary options trading, you have to choose the expiration time and then decide what is the amount of money you would like to invest in the trade. Next, you have to choose the strike price. And the last step is to hit the Higher or Lower button.
On the right side of the chart, there are a few boxes with different prices. Hover the mouse over them and the percentage profit you can get will change. For instance, when you hover a cursor over one box and the higher button reveals +820% profit, you can expect such a gain when the price will be higher than the strike price at the expiration time.
Binary options and digital options trading are similar in some ways, but you must be aware of the differences between them. With digital options, you can earn more but the risk is much higher as well.
IQ Option offers both, binary and digital options and you can try them on the free demo account available on the platform. The transactions you perform there are risk-free, so you have time to get to know trading options.
Wish you an enjoyable experience!