Contents
- 1
- 2 Binary vs digital options wiki Q&A
- 3 Similarities between binary option and digital option asset types on IQ Option
- 4 What is the difference between binary and digital trading in IQ Option?
- 5 Trading binary option on IQ Option
- 6 How Do Digital Options Work on IQ Option
- 7 Binary vs digital options, which to choose?
- 8 FAQs
- 9 GENERAL RISK WARNING
Disclaimer: “This material is not intended for viewers from EEA countries. Binary options are not promoted or sold to retail EEA traders.” (aka the binary options are not available for traders from Europe)
Introduction
IQ Option Binary vs Digital Options, which is better? Today we compare the performance and characteristics of option instruments on the IQ Option platform. Find out how binary and digital options differ.
Key Takeaways🔑
| →Both binary and digital options are types of derivative assets offered by IQ Option. |
| →Binary options trading involves predicting the direction of the price, while digital options trading depends on both the direction and the price distance from the strike price. |
| →Binary options have fixed returns, while digital options have fluctuating returns with a potential of up to 900% return on investment. |
| →The choice between binary and digital options depends on individual trading strategies and expiry periods. |
| →Always practice responsible trading and consider your risk tolerance before engaging in any form of trading. |
Binary vs digital options wiki Q&A
IQ Option is one of the few online brokers that has managed to attract millions of traders from across the globe over a short amount of time. The main reason for this is their innovation and introduction of new features and instruments. One of their latest introduction is digital options trading.
This guide will look at both binary options and digital options. These are financial instruments offered by IQ Option.
What is an option
An Option is part of the derivatives types of assets. This means that their value is intrinsically tied to the value of an underlying asset.
When you buy or sell an option, you do not own the underlying asset. You're typically speculating on whether the asset's price will go up or fall over a specified period. Upon trade expiry, you will either earn a profit or incur a loss.
The profit is usually calculated as a percentage of your trade investment. The total amount you could lose is your trade investment amount. However, some brokers such as IQ Option will allow you to exit the position before the option expires.
Binary option trading on IQ Option
Also popularly known as a high-low option, binary options trading involves speculating whether the price of an asset will rise or fall over a given amount of time. Your trade entry marks the strike price.
If you anticipate that the option will expire when the price is higher than this, all you need to do is enter a higher position. The trade expiry is always predetermined. On the IQ Option platform, this ranges from 1 minute to 1 month.
IQ Option binary trades always have a fixed return which is calculated as a percentage of the trade investment. The return you receive depends on the asset being traded and market volatility.
Digital options trading on IQ Option
The digital option combines the power of the binary option and the increase in the price of the underlying asset. So rather than have a fixed return, the return for a digital option is calculated based on how far away the price moves from the strike price.
The further away from the price moves, the higher the return. This means that you can potentially earn up to 900% return on investment when trading digital options. The trade expiry for the digital option is 1 minute, 5 minutes and 15 minutes on the IQ Option platform.
Similarities between binary option and digital option asset types on IQ Option
Both option types have a predetermined expiry. Once the expiry period is reached, the position is automatically closed. The trade expiry for both is indicated by a vertical red line on your chart.
Both option types require you predict whether the price will be higher or lower than the strike price on trade expiry.
IQ Option offers binary option and digital option for currency pairs and commodities. In terms of the number of assets available in the binary vs digital options battle, the former offers about 2 times as many assets available for trading.
What is the difference between binary and digital trading in IQ Option?
Binary options trading is dependent on the direction of the price relative to the strike price. That is, whether the price will be higher or lower than the strike price at trade expiry.
Digital options trading on the other hand is dependent on both the direction and the price distance from the strike price. That is whether the price will be higher or lower as well as how far away the price will be at trade expiry.
The return for binary options trading is fixed and predetermined at trade entry. The return for digital options trading on the other hand fluctuates as long as the trade remains open.
With binary options trading, the maximum amount you can lose is your trade investment. With digital option trading, your losses can be higher than your trade investment. The further away the prices move from your prediction, the higher your percentage loss.
Binary Options have expiry periods ranging from 1 minute to 1 month. The digital option on the other hand has trade expiry periods lasting 1 minute, 5 minutes or 15 minutes.
Binary vs Digital options do not have that many significant differences. Often the strategy used will determine which instrument you use. A simple example: If your method involves opening an option for an hour, digital options are out of the question because their longest expiry time is 15 minutes.
Trading binary option on IQ Option
Once you've logged into your trading account, click on the select assets feature (plus sign at the top of your trading interface).
Next, select options then binary. Choose the asset pair you want to trade with. Use a Japanese candle chart with 5-minute interval candles.
After analyzing the chart, enter the amount you want to trade. Next, enter the trade expiry. While using 5-minute candles, the minimum expiry should be 5 minutes.
You can learn more about trading candles in The Ultimate Guide for Trading Candles on IQ Option.
Pros and Cons📊
-
- 👍Binary options have fixed returns, making it easier to calculate potential profits and losses.
- 👍Digital options offer higher potential returns, with up to 900% return on investment, making them attractive for risk-tolerant traders.
- 👍Both binary and digital options offer various expiry periods, catering to different trading strategies and preferences.
- 👎Binary options may have limited returns compared to digital options, making them less appealing to some traders.
- 👎Digital options carry a higher risk due to their fluctuating returns and potential for higher losses.
- 👎Both options require a solid understanding of market analysis and risk management to trade successfully.
| Binary Options | Digital Options |
|---|---|
| Fixed return on investment | Fluctuating return on investment |
| Expiry periods from 1 minute to 1 month | Expiry periods of 1 minute, 5 minutes, and 15 minutes |
| Lower potential returns compared to digital options | Higher potential returns, up to 900% return on investment |
| Only requires predicting the direction of the price | Requires predicting both the direction and price distance from the strike price |
How Do Digital Options Work on IQ Option
Once you've logged into your IQ Option account, click on the select assets feature. Click on options and then select digital. Next, choose the assets you want to trade with.
Set up a Japanese candle chart with 5-minute interval candles.
At the right of your chart, you'll see sets of boxes with prices in them. If you hover your cursor over these boxes, you'll notice that the higher and lower buttons have possible percentage profits you can earn. For example, if the higher button shows a +250% profit, it simply means that you can make this amount if the price is higher than the strike price (price cursor is at) upon trade expiry.
Once you've analyzed the chart and determined the direction the price will take, follow these steps:
- Select the strike price
- Enter your trade amount
- Select the trade expiry
- Select direction (higher or lower)
Binary vs digital options, which to choose?
As you've seen, binary options and digital options have similarities and differences. Digital options have a higher risk-return compared to binary options. Now that you've learned about both, try them out in your IQ Option practice account today. We'd love it if you share your experience in the comments section below.
Good luck!
FAQs
What is the difference between options and binary options?
Traditional options give the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price and time. Binary options, on the other hand, offer a fixed payout if the underlying asset meets a certain condition, such as a specific price level, before the option expires. Binary options are typically considered a simplified form of options trading.
Can you win with binary options?
Yes, it is possible to win with binary options. The outcome of a binary option trade depends on whether the underlying asset meets the specified condition by the time the option expires.
If the condition is met, the trader receives a fixed payout, which can be as high as 90% or more of the initial investment. However, binary options trading is also associated with a high level of risk and traders can lose their entire investment if the trade does not go in their favor.
What is the difference between binary and digital trading in IQ Option?
In IQ Option, binary trading and digital trading refer to the same type of options trading. The term “digital” was introduced to differentiate this type of trading from traditional binary options, which offer only two possible outcomes – either a fixed payout or nothing at all. In digital trading, traders have more flexibility in choosing the strike price and the potential payout is variable.
How Do Digital Options Work?
In digital options trading, the trader selects an underlying asset and predicts whether its price will rise or fall within a specified time frame. The trader also chooses the strike price, which is the level at which the trade will be considered successful.
If the price of the underlying asset reaches or exceeds the selected strike price within the specified time frame, the trader receives a payout. The payout amount varies based on the strike price and the market conditions at the time of the trade.
Are Digital Options Halal?
There is ongoing debate among Islamic scholars regarding the permissibility of trading digital options. Some argue that it is similar to traditional options trading, which is not considered halal due to the element of speculation and uncertainty involved.
Others argue that digital options are closer to futures trading, which is generally considered permissible in Islamic finance. Ultimately, the decision on whether digital options trading is halal or not depends on the specific interpretation of Islamic law and the individual trader's conscience.
Q&A Section💡
- Q1: Which is better for beginners, binary or digital options?
A: It depends on the individual's risk tolerance and understanding of the market. Binary options may be more suitable for beginners due to their fixed returns and lower risk, while digital options may appeal to those looking for higher potential returns and are comfortable with higher risk. - Q2: Are binary and digital options available on all trading platforms?
A: No, not all trading platforms offer both binary and digital options. IQ Option is one of the platforms that provide both types of options for trading. - Q3: Can I use the same trading strategies for binary and digital options?
A: Some strategies may be applicable to both binary and digital options, but it is essential to adapt your approach based on the unique characteristics of each option type, including expiry periods and potential returns. - Q4: How do I manage risk when trading binary and digital options?
A: Proper risk management is crucial for successful trading. Setting stop-loss orders, investing only a small percentage of your total capital per trade, and diversifying your investments are all essential risk management strategies. - Q5: How can I improve my skills in trading binary and digital options?
A: Continuously educating yourself on market analysis, trading strategies, and risk management, as well as learning from experienced traders and practicing on demo accounts, can help you improve your skills and become a more successful trader.