If you’re interested in trading binary options, you may have heard of a concept called “touch trading.” Touch trading is becoming increasingly popular among traders. However, as with any new-age trading strategy or concept, it’s essential to understand how it works before you start. In this article, we’ll provide you with an introduction to touch trading and explore its advantages and disadvantages.
What Is Touch Trading?
Touch trading is a binary options trading type that predicts whether an asset’s price will touch a specific price level before the option expires. This means that the trader is not just predicting the direction of the asset’s price movement but also whether it will reach a certain level.
For example, let’s say you want to trade Apple stocks. You can choose a touch option with a target price of $150. If the stock price reaches or surpasses $150 before the option expires, the option is considered “in the money,” and the trader earns a profit. If the price doesn’t touch $150, the option is considered “out of the money,” and the trader loses the investment.
How Is Touch Trading Done?
Touch trading is done through binary options brokers who offer this type of trading option. Traders choose an asset, select the touch option, and set a target price level and an expiration time. The trader must then predict whether the asset’s price will “touch” the target level before expiration.
Advantages of Touch Trading
There are several advantages to touch trading. Those include:
Potential for High Profit
Touch trading “potentially” offers high payout rates, which can result in significant profits for successful trades. The high-profit potential stems from the ability to get in at the source of market action. Touch trading is quite an aggressive trading strategy that allows investors an early entry and potentially a greater profit potential.
Tighter Trade Management
Another inherent advantage of tough trading is that traders can bail out if the market goes against them. Traders can set up stop/loss placements by examining resistance areas and potentially leverage high risk to yield higher rewards.
Simple Trading Process
Touch trading options are straightforward and easy to understand. The process involves picking an asset, selecting the touch option, and predicting the price the asset will “touch.” If the price reaches or surpasses the touch option the trader has set before expiration, they make money. If not, they lose money.
Disadvantages of Touch Trading
As with every trading type, there are certain disadvantages traders must familiarize themselves with. Those include:
Touch trading is a high-risk strategy requiring precise asset price movement predictions. One wrong prediction can result in a total loss of your investment. The high risk stems from the lower hit rate of touch trading. Since it’s nearly impossible to predict an asset’s price, touch trading cannot guarantee even a moderate hit rate.
Short Expiration Times
Touch trading options usually have short expiration times, which can be challenging for traders who prefer longer-term investments.
Touch trading options are not available for all assets, and not all binary options brokers offer them.
Not Beginner Friendly
Despite being simple to understand, touch trading is anything but beginner friendly. Moreover, few online resources educate investors on how to make touch trades. Therefore, touch trading isn’t recommended for beginners and requires further understanding to determine if this type of trading is for you.
Touch trading is a binary options trading that predicts whether an asset’s price will touch a specific price level before the option expires. Touch trading isn’t necessarily a new concept, but the lack of educational material and trading examples makes it challenging to understand.
Before trying touch trading, you must do your research and learn the ins and outs of this trading type to determine if it’s right for you.
Touch trading works through a binary options broker. Traders must select the stock or asset, select the touch trading option, and pick a price with an expiration. If the asset reaches or surpasses the target price, the trader is in the money. If not, they are out of the money.
Touch trading is high-risk and potentially high-reward strategy.
Touch trading isn’t recommended for beginners. Despite being a simple trading process, touch trading requires extensive knowledge of market trends and, most importantly, making an “in the money” price prediction to make a profit.