What are Digital Options?

June 20, 2017 by in category Articles tagged as , with 0 and 0
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In trading, or in the financial industry altogether, we have noticed a slight shift in the terminology which is used for binary options. Brokers have increasingly started to refer to this financial instrument as “digital options”. The term “digital options” isn’t very new at all and was used in the past for binary options by big forex companies, alongside the terms “all-or-nothing options” and “fixed return options” which are used on the American Stock Exchange for the same financial instrument as binary options. Overall, it could be said that digital options are a type of binary options, where you choose between two options: Call or Put, and predict whether the price of an asset will go up or down. These trades are usually made on trading platforms of American brokers, who are regulated by the Commodity Futures Trading Commission (CFTC). Why has the term “digital options” now gained popularity outside of the USA as well?

digital_options

In other words, a lot of financial brokerage companies had to change the name of the popular product, binary options, into something different. For example, the IG Group renamed binary options back in January 2017 into Digital 100s. This is something similar to Digital Options, but they introduced completely new name, and 100s probably is connected to the maximum price of a contract they are offering, which is 100. The renaming process was fairly quick and took place straight after the Banc de Binary was officially closed, and the IG Group most likely wanted to avoid the negativity which flooded the news about binary options. Other than bad publicity, more and more companies use digital options for all-or-nothing contracts due to legal reasons. A lot of financial commissions in Europe started banning advertisements of binary options and CFDs, so brokers started using new names. However, this tactic won’t stay for long, or at least not until the laws are changed.

How to trade digital options?

There is no difference between digital options and binary options, so the trading process is completely the same. Brokers just tend to use a different name in order to comply with financial commission regulations or advertisement laws. Digital Options refers to the same predictions of the asset price movement, Up or Down, after the fixed expiration time ranging from 60 seconds to 30 days, depending on the trading platform. Let’s look at example of our recent trade with IQ Option:

gold_iq_option_end_of_the_dayThere are two possible outcomes of our GOLD (you can pick any other asset you like) trade:

CALL, means that we believe that price of the Gold will be above $1255.8545 at 18:00 (GMT+1);

PUT, means that we believe that the price of the Gold will be below $1255.8545 at 18:00 (GMT+1);

The Gold price might go up and down during the day, but all that matters for us is what the price of the Gold will be at the end of the day (EOD) at exactly 18:00. In our case, 18:00 is our chosen expiration time, but with digital options other expiration times could be chosen as well (60 seconds is the lowest).

Let’s say that you think that the Gold price will be below $1255.8545 at 18:00, and you buy this digital option, then there are only three ways in which your trade could end:

  • You win, if the Gold price will be at least $1255.8544 or below at 18:00.
  • Your trade will be cancelled, or At the Money, and you will receive your money back if the Gold price will be exactly $1255.8545 at 18:00.
  • You lose, if the Gold price will be at least $1255.8546 or above at 18:00.

We placed “Put” option and closing price was $1254.585, meaning we won. Screenshot of the result is attached below:

Gold_iq_option_profit

I hope this simple example on how to trade digital options makes sense. You can trade digital options with any broker which is listed on our website, but we tend to recommend IQ Options because they have a user-friendly and responsive trading platform, whereas the minimum deposit is $10 with a minimum trade amount of $1. They also give up to 91% profit on every successful trade, but at the same time, please don’t forget that binary options trading carries a high level of risk and can result in loss of all your funds. You should not invest money that you cannot afford to lose and that should be a general rule when it comes to any type of options contracts, digital options, digital 100s or binary options.

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Binary Options trading involves high risks which may not be suitable for every person. Never invest money which you can’t afford to lose and make sure you familiarise yourself with the basics of binary options before you start. MrBinary.co.uk is not responsible for any losses, as all our pages should be used for informational purposes only.

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