High low trading is the simplest and also the most popular type of binary option trading. In order to gain profit you need to predict whether a price is going to increase or decrease during a predetermined period of time. I.e. ‘Will the EUR/USD at 19:00 close Higher or Lower than the current price?’
Rule of a thumb in binary option trading is – if price of an underlying asset moves in anticipated direction, trader gets paid a pre-determined profit (in the case above it would be 82%). However, in the market there are different types of binary options devised as different strategies to hedge against a potential loss.
It’s important to learn about these types and strategies in order to better cater your needs.
High/Low or Call/Put Binary Options
This is a basic type of binary option deal. This is not only the easiest binary option trading method but also one of the most popular because of its simplicity.
With this trading type a trader has to decide if a price of the selected asset is going to increase or decrease at the end of determined period of time. i.e. A trader reads the morning news and sees that the price of Apple shares, currently trading at $94.40, is expected to rise during a day. A binary call option, expiring at midday, has a strike price of $95.50 with a 75% return if the option expires “in-the-money” and 10% pay back if it expires “out-of-the-money”. The trader decides to invest $200 in the call option. When expiration occurs at midday, Apple shares are trading at $96.12, so the option expired “in-the-money” and the trader receives $350 representing the predetermined return on the $200 investment. If the expiration price would have ended below the strike price then trader would have gotten $20 back from the initial investment.
In the picture above you can see small example how does it look in real life. It might look like this or similar. Up can be also replaced with Call or High option and Down with Put or Low option.
You can find this type of binary option trading in most, if not all, trading platforms. Usually people begin with this type of trading type and when they get comfortable with it they move on and begin trading with more complex.