DIGITAL OPTIONS TRADING WITH IQ OPTION - HOW TO & REVIEW 2022
This material is not intended for viewers from EEA countries. Digital options are not promoted or sold to retail EEA traders.
Overview:
- Trade currencies and commodities
- More than 20 assets to choose from
- OTC digital options available for weekend trading
- Choose between different strike prices
- Maximum payouts of up to about 900% (for successful trade)
- Maximum ‘Current Price Mode’ payouts of over 90% (for successful trades)
What are Digital Options?
Digital options are contracts that enable traders to speculate on the short-term price movements of different assets. As with other types of options, the potential payout on a particular digital option contract is calculated with a specific strike price as reference. The distance of the strike price from the current market price and whether the strike price is above, below, or at the current market price are some of the factors that determine the potential payout of a digital option trade. The time left to expiration and the implied volatility of the underlying instrument also have a direct impact on the potential payout of a digital option trade, provided that the strike price is not equal to the current market price at the time of execution.
What is the Difference Between Digital Options and Binary Options?
The main difference between digital options and binary options is that with digital options, traders can choose between a range of different strike prices when entering a trade. Obviously, if the strike price is altered, the potential payout is altered as well. With binary options, the current market price is the only strike price available to traders.
Another important difference between IQ Option’s binary options and digital options is that with digital options, the price at expiration has to be beyond the strike price for the trade to expire in the money (ITM). If the price at expiration is equal to the strike price of the option, the trade expires out of the money (OTM) and the trader loses his investment in that trade.
With binary options, however, a trade that expires at the same price as the strike price results in a flat trade ($0 profit/loss). This is why you will typically find that digital options that are traded in the ‘Current Price Mode’ generally offer higher payouts than binary options (because the slightly higher risk of losing a digital options trade is compensated by its payout being higher).
How to Trade Digital Options With IQ Option
Different Strike Price Modes
The potential payout of a particular digital option trade is directly influenced by its strike price. There are 3 different strike price settings with which trades can be initiated:
1. Current Price Mode (Basically the same as trading binary options)
When ‘Current Price Mode’ is activated, the strike price and the current market price (mid price) are always the same. So, when you enter a trade, the strike price you achieve will always be the live market price you see on the right side of your chart. Sometimes your trade may be filled at a different strike price because of execution latency when the market moves before your order request reaches IQ Option’s servers. But for practical purposes, let’s just say that your order will be filled with a strike price which is equal to the market price at the time of execution.
Here is an example of what it looks like when ‘Current Price Mode’ is activated:
In this example, the payout is 87%. This is the same for ‘Higher’(green button) and ‘Lower’(red button). When trading digital options in this way, it’s basically the same as trading binary options. As already explained, the only difference is that a digital option trade cannot produce a $0 profit/loss at expiration, while a binary option trade can.
2. Auto-Selection of the Nearest Strike Price
In this mode, the nearest strike price loosely tracks the current market price, often in a delayed fashion, bouncing around in a staccato-like manner. Sometimes, the strike price is equal to the market price. At other times, the strike price may be above or below the current market price. Whenever the strike price is not equal to the current market price, there is an ‘imbalance’ between the payout percentages for ‘Higher’ and ‘Lower’ because the probability of the option expiring above or below the strike price is no more a 50/50 chance. Here is an example of what to expect in this mode:
In the chart above, the strike price and the market price are at different levels. The payouts for ‘higher’ and ‘lower’ are also notably different, as seen in the white circles.
Trading digital options in this mode can be tricky for beginners because the strike price bounces around and may be situated at different distances from the current market price, causing the payout percentages for ‘higher’ and ‘lower’ trades to frequently fluctuate.
3. Manual Choice Between Different Strike Prices:
In this mode, you can manually choose between a range of different strike prices which are displayed at the right side of the chart. This range of strike prices is also presented in a list which can be accessed by clicking on ‘Time’ in the top-right corner of your screen. Here is an example:
For this mode to be active, the tick box next to ‘Auto-selection of the nearest strike price’ needs to be unticked. In the screenshot above, you can see this in the white box with the white arrow pointing to it.
When you have unticked the tick box to activate the ‘manual strike price mode’, this mode will automatically switch back to the ‘Auto-selection of the nearest strike price’ mode as soon as the ‘Purchase Time’ of the option runs out. If you have an open trade on the instrument you’re looking at, the switch will happen 5 seconds before the ‘Purchase Time’ runs out. So if you prefer trading in the ‘manual strike price mode’, you will have to activate it each time you open a new chart and each time the ‘Purchase Time’ runs out. The ‘Purchase Time’ is indicated by a vertical white dotted line marked with the words ‘Purchase Time’. This is what it looks like:
When you are in the ‘manual strike price mode’ and you click on a certain strike price, that strike price will remain selected until you click on another strike price or until the purchase time of the option runs out.
Different Expiration Times for Digital Options
Digital options can be traded with 3 different expiration times:
- 1 Minute
- 5 Minutes
- 15 Minutes
Trades can be entered late or slightly early, which means that actual expiration times may be shorter or slightly longer than the 3 periods mentioned above. Please note that the available expiration times can change from time to time.
Closing Digital Option Trades Manually
Digital option trades can be closed at any time before expiration. To see how much you will win or lose if you close a trade prematurely, look at the ‘Profit After Sale’ amount which is displayed at the top of your screen. To close a trade, click on the ‘Sell’ button at the top of the screen or on the ‘Close’ button which is situated on the candlestick where the trade was opened:
Minimum and Maximum Trade Size on Digital Options
You can place a digital option trade with as little as $1. The maximum trade size is $20,000.
Digital Option Instruments Available
EXAMPLES OF DIGITAL OPTION INSTRUMENTS YOU CAN TRADE.
Standard digital options are available in over 8 currency pairs and several cryptocurrencies. These instruments can be traded 5 days a week from Monday to Friday at certain times during the day. Each instrument has its own trading times. For example, the USD/JPY digital option can be traded between 00:30 and 20:45 GMT. To see the market times for each digital option instrument, simply click on the info button at the top-left of the chart and then choose the ‘Trading Conditions’ option.
OTC (over the counter) digital options can be traded from Friday evening to Sunday evening when traditional financial markets are closed. For example, the EUR/USD OTC digital option is tradable between 21:05 GMT on Fridays to 20:55 GMT on Sundays. OTC digital options are available in over 10 currency pairs.
Payout Percentages (Profitability Percentages)
Payouts on Trades With Manually Selected Strike Prices
Digital option trades of which the strike prices are manually chosen can offer *payouts of up to about 900 %, depending on how far the selected strike price is from the current market price. The further the strike price is from the current market price, the higher the potential payout is for a trade made in the direction of the strike price.
The expiration time also plays an important role in calculating payout percentages. A strike price that is far enough away from the current market price to make a 567% *payout possible on a trade with a 1-minute expiration will in most cases not be far enough for the same payout on a 15-minute trade. This is because there is a better chance for the price to reach a far-out strike price if there is more time left until expiration.
Payouts on Trades Placed in the ‘Current Price Mode’
In this mode, the payouts are the same for both trade directions. As mentioned earlier, this type of trading is basically the same as trading binary options. *Payouts in this mode can be more than 90% in some cases but it is common to see *payouts of about 87%.
Payouts on Trades Placed at the Nearest Strike Price (Auto-Selected)
In this mode, in many cases, the payouts for trades in either direction are pretty close to each other or the same. This is especially true when the strike price closely follows the current market price. Here is an example of where the strike price and current market price are close to each other:
As you can see, the payouts for both trade directions (higher/lower) are almost the same. When the strike price and current market price diverge to a moderate degree, a more notable difference between the payouts for opposite trade directions will appear. For example, if the *payout for ‘higher’ is 130%, the *payout for ‘lower’ could be 38% (derived from a real quote on the NZD/USD OTC digital option instrument, with a strike price at 0.652470 and a market price at 0.652454).
*Payout percentages apply to successful trades only.
Who Can Trade Digital Options?
Digital options are only available to professional traders from the European Union and non-regulated traders from outside the European Union. Retail EU traders do not have access to digital options.
Apps and Platforms For Trading Digital Options
Digital options can be traded with any of IQ Option’s mobile apps:
- Apple/iOS mobile app
- Play Store mobile app (Android)
- APK mobile App (Android)
- PWA (Progressive Web App)
Digital options can also be traded with any of IQ Option’s desktop and web platforms.
How to Place Your First Digital Option Trade - A Beginner’s Guide
For beginners, the easiest way to start trading digital options is to use the ‘current price mode’. This mode is basically the same as trading binary options. Here is a brief guide on how to get started with trading digital options with IQ Option:
Enable ‘Current Price Mode’
First of all, you need to activate the ‘current price mode’ on your trading platform. After you’ve opened a price chart of the digital option instrument you want to trade, click on ‘Time’ in the top-right of your trading platform and then click on ‘Enable Current Price Mode’:
To make sure you’re in the ‘current price mode’, check that there is only one payout rate for both ‘higher’ and ‘lower’. Here is an example of what it should look like:
Select the Expiration Time, Investment Amount, and Choose ‘Higher’ or ‘Lower’
After you have enabled the ‘current price mode’ you can proceed with your analysis and place some trades. At the top-right of your chart, select your expiration time. Just below this, you can enter the amount you want to invest in the trade. Finally, after you have done your analysis, you can simply click ‘Higher’ or ‘Lower’ to open your trade. These 3 actions are indicated with arrows in the following image:
It is recommended to first place enough trades on your practice account to get a feel of the different elements of a digital options trade. Things to take note of are the payout percentage, purchase time (white dotted line), expiration time (red line), etc.
When you have placed a trade with a specific expiration time, you can place additional trades with the same expiration time until the purchase time runs out. After this, you will have to click ‘New Option’ to place trades that will have a new expiration time.
IQ Option Trading Platform Features
IQ Option’s trading platforms are some of the best in the world and offer a great variety of financial instruments. Not only can you trade digital options and binary options, but also forex pairs, commodities, cryptocurrencies, stock indices, stocks and ETFs.
Let’s take a look at some of the features that make IQ Option a leader in the world of online trading.
Charts, Technical Indicators, and Other Trading Tools
Charts
IQ Option’s trading platforms support four different types of charts:
- Candlestick charts
- Line charts
- Bar charts
- Heikin-Ashi charts
Candlestick charts, bar charts, and Heikin-Ashi charts have different candle time periods available - from 5 seconds up to 1 month.
Technical Indicators and Graphical Tools
IQ Option has an excellent range of no less than *99 technical indicators. These indicators are divided into the following groups:
- Momentum Indicators: 32
- Trend Indicators: 23
- Volatility Indicators: 13
- Moving Averages Indicators: 7
- Volume Indicators: 4
- Other Indicators: 20
*The number of indicators can change at any time.
To access the different technical indicators, click on the indicators button in the bottom-left corner of your screen. Traders can also draw different types of lines on their charts by clicking the ‘Graphical Tools’ button directly above the ‘Indicators’ button.
Widgets
The following widgets can be activated on different groups of instruments:
- Traders’ Sentiment
- High and Low Values
- Other Traders’ Deals
- News
- Volume
IQ OPTION’S WIDGETS.
These widgets can be really handy to keep track of news events, market sentiment, price action extremes, and trading volume. You can also see where other traders have bought or sold the asset you’re looking at.
Widgets can be accessed in the same tab where the technical indicators are situated.
Price Alerts
You can create price alerts on any of IQ Options financial instruments. With digital and binary options, this can be done with a single click on the alert button on the right side of the chart, where the price scale is situated. With all other instruments, two clicks will do the job.
Market Analysis
The market analysis section can be accessed from the vertical taskbar which is on the left side of the trading platform. When you click on ‘Market Analysis’, a tab is opened with these 4 sections:
- News
- Forex Calendar
- Earnings Calendar
Each of these sections is populated with relevant calendar events or market news. The news section contains market information and news affecting different market sectors and asset classes.
IQ Option’s Regulation / Licence
IQ Option Ltd. is registered at St. Vincent and the Grenadines and this entity is not regulated.
Free Demo Trading Account
IQ Option’s demo trading account is an incredible tool with which traders can practice their trading without any risk to their capital. This practice account allows traders to acquaint themselves with IQ Options trading platform, instruments, and trading conditions before trading live with real money. The demo trading account has all the features and instruments of a live trading account. Traders can also switch between their live and demo accounts with only a few clicks, which is really convenient.
Trading Tournaments
Traders from non-EEA Countries can partake in IQ Option’s trading tournaments. To enter these tournaments, click on the ‘More’ button at the bottom of the vertical taskbar which is on the left side of the trading platform.
A TRADING TOURNAMENT WITH A PRIZE POOL OF $50,000 AND AN ENTRY FEE OF $20.
Customer Support
IQ Option’s support team is on standby to assist clients 24 hours a day, 7 days a week, via live chat, telephone, or email. To access customer support (live chat), click on the red ‘SUPPORT’ button at the bottom-left of your trading platform. You can also phone the number right next to this button.
Awards
During the years, IQ Option has received numerous awards for its outstanding trading apps, its efficiency, its commitment to quality and excellence, customer satisfaction, and other attributes.
Conclusion
Digital options are an interesting alternative to binary options. Clients who trade digital options can approach the market in a few different ways and modify the probabilities and risk to reward ratios of their trade setups.
A really good feature of digital options is that you can also trade it in the ‘Current Price Mode’, which gives you a very similar experience to trading binary options. An attractive feature of trading digital options in this mode is that the payouts are higher than on the corresponding binary option instruments, although there is a slight difference in trade outcome probabilities between binary options and ‘current price’ digital options.
While binary options are not available on IQ Option’s iOS app and the Play Store Android app, digital options can be traded on both of these apps. This makes digital options more accessible to non-regulated traders than binary options.