With the double no-touch binary option trade, the binary options trader selects a set of strike prices above and below the current market price as well as an expiration time. The broker will offer him a payout percentage corresponding to his selection.
For the investment to payoff, the price of the underlying asset must not hit either one of the strike prices once before the option expires.
Payout will vary greatly depending how far away is the strike price and the time till expiration. The further away the strike prices, the lower the payout. The longer the expiration time, the higher the payout as one has more time to hit the target.
Unlike the common high-low variant where the payout rarely exceed 90%, the payouts for one touch binary options can easily exceed 100% and payouts between 200% to 500% are not uncommon.
It is entirely up to the trader how much he wishes to invest with each purchase of the binary option but the minimum and maximum he can put in with each option varies across brokerages.
EUR/USD is currently trading at $1.30. A binary options brokerage is offering 50% payout for a double no-touch binary option that expires in 5 minutes which has an upper price barrier of $1.31 and a lower price barrier of $1.29.
After tracking the price movement of EUR/USD for the past hour, the binary option trader believes that the underlying price movement has little volatility and will not hit either the $1.31 or $1.29 price barriers within the next 5 minutes. He decides to invest $100 to purchase this double one-touch binary option.
If EUR/USD goes up to $1.31 or down to $1.29 anytime within the next five minutes, the trader will have lost his initial investment of $100.
However, if the price of EUR/USD never rise to $1.31 or drop to $1.29 during the whole 5 minutes, the investment pays off and the trader earns a profit of 50% of his initial investment, which is $50.
Conversely, there is the double one-touch variant as well. See Double One-Touch Binary Options.
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