The expiry is one of the most used terms surrounding binary options. Often, new traders do not know what this term means. Do not worry, though, this article will help you understand expiry binary options.
What are expiry binary options?
The expiry is the expiration time of your binary option. Contrary to conventional assets, binary options have a predefined expiration time.
That means, while you have to sell conventional assets to end your investment, binary options will end after a predefined period of time. Success and failure of your investment will be determined by whether you predicted what the market will do until your option expires correctly or not.
Having a predefined expiration time for your investment also influences the payout. While the payout of conventional assets is determined by how far the price of the asset has moved into a direction, the payout of binary options depends on whether your prediction was right or wrong.
Should you have predicted right, it does not matter how right you were. Whether your prediction just barely came true or the market exceeded your prediction – you will always receive the predefined payout of your option. This system makes your trading more predictable. You always know what you can win or lose.
Continue reading below the table on expiry binary options…
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What different expiration times are there?
All binary options use relatively short expiries. Depending on your broker, the longest expiration time you can use will be one or two hours. Some brokers also offer an end of day expiry.
Starting from one or two hours, available expiration times get shorter. Most brokers offer 30 minutes, 15 minutes, 5 minutes, and 60 seconds options. Some broker also offer 30 seconds, 120 seconds, and other option types. With touch options and boundary options, the expiry of your binary option usually also determines the target price. The longer it will take for your binary option to expire, the further is the target price away.
Which expiry should I use?
Which expiration time you should depends on which kind of binary option you are trading.
If you are trading high / low options, the expiration time of your option is highly critical to the success of your investment: Your prediction will be evaluated when your option expires. What the market has done up to that point, does not matter.
That means, if you have invested in a high option with an expiry of 30 minutes, you have predicted that the market will be trading higher exactly 30 minutes after you invested.
You will win this option even if the market traded lower for the entire time and moved higher seconds before your option expired. Vice versa, you will lose your investment if the asset is trading lower, even if moved to the lower side only seconds before your option expired. As this example shows, timing is essential to winning a high / low option. As a trader, you should therefore always estimate the duration of the movement you are expecting. Choose your expiration time accordingly.
For traders of touch options and boundary options, on the other hand, choosing an expiration time is simple. For these kinds of options, the market has to trigger the target price only once before the option expires. Once the market has reached the target price, you have won your option.
Therefore, you should choose the expiration time of your binary option as long as possible. Determine the reach of the moving you are expecting by using momentum indicators such as the average true range, and then choose the longest expiration time you can find that still offers you a target price inside the range of the movement.
Independently of the binary option type you are trading, you should be careful when trading short time frames. On short time frames, the market moves very erratic, which requires special strategies.