New Digital Option Vs Classic Option Trading

 Bart Bregman
  Apr 30, 2019

While there have been classic options for several decades, new digital options are In comparison, relatively new financial products. The first specialized brokers to offer digital options trading appeared in the market years ago. As a result, digital options have been around, so they are no longer entirely new products. There are many similarities between classic and digital options, but there are also some major differences.

digital option

In the following guide, we would like to inform you about the similarities and differences of new digital option vs classic options trading. In addition, we give you clues as to which speculative investors are more likely to prefer traditional options and who digital options are often the better choice.

Main features of classic and digital options are similar

In the main features are quite similarities of classic and digital options. First of all, in both cases, each option is based on one underlying asset, and like any other derivative, you need a broker to trade with those same instruments.

In our comparison of digital options brokers, we have tested the best known and largest brokers for you. For both classic and new digital options, there are the following four underlying types that serve as a basis for speculation:

  • indices
  • shares
  • raw materials
  • currency

As a result, both classic and new digital options contain numerous equities, indices, but also foreign exchange and commodities, which represent the so-called underlying, also known as assets or underlings. With classical and digital options, the investor does not speculate on the option but merely provides the means to speculate on price and price developments in the aforementioned four underlying asset types.

Another commonality between classic and digital options is that trading is possible with relatively little capital. For example, depending on the broker, speculative investors may trade in digital options starting at five or ten euros.

The classic options also often allow small capital inflows of less than 50 euros, but these options operate with leverage, which is a difference to the digital options. In the following part of the differences, however, we will go into that in more detail. Another common feature of digital option and classic options is that in both cases the total loss of the capital invested is possible. In addition, the trader has the right in both cases

Various differences between classic and new digital options

In addition to the similarities, there are quite a few differences that are suitable for separating the new digital options and classic options. First of all, we would like to give you a brief overview of some of these differences, but then also discuss some of the different properties of classic and digital options.

First and foremost, there are the following features that can differentiate between classic and new digital options:

  • Simplicity/flexibility of trade
  • with a lever or without lever
  • maturities
  • Number of underlying
  • maximum chance of a winning / type of profit
  • We would now like to discuss the above points in more detail

Simplicity or complexity of trade

Quite a few experts believe that one reason for creating the new digital options trading is that they are easier to understand and easier to trade than traditional options. This is confirmed, if you look at the construction of the classic option and warrants closer. For each option, there are various measures that should help the speculator, whether it is a promising option or not. Among other things, these key figures serve to compare the numerous options. Some of the metrics that relate in part to options and some to warrants include:

  • Theoretical lever
  • delta
  • gamma
  • value

These are just a few of numerous metrics that make it hard for professional investors to evaluate the options. In the case of binary options, however, such key figures do not exist, especially since, unlike traditional options, there is no fair value, but this does play a role in the value of the warrant. Possible lever investors do not have to consider digital options, because this form of the option does not work with levers. On the lever, we would like to elaborate in the following section.

No leverage on new digital options

Leverage, also known as leverage, exists on virtually all options and also on warrants. It ensures that the value of the option changes by a multiple compared to the performance of the underlying.

Simply put, this means that if the price of the DAX index as underlying for the classic option rises by two percent, for example, the value of the option would immediately change by ten percent gave theoretical leverage of 5: 1.

However, such a disproportionate change does not exist with new digital options. Instead, with digital options, the value of the option does not change due to price changes in the underlying. In simple digital options, it is only important that the price or price at the time of expiry of the option is higher (for call options) or lower (for put options) than when the new digital option was acquired.

When are profits made and what are the odds of winning?

Both classic options and new digital options have maturities, ie a point in time at which the respective option expires. When profits can be made and what the chances of winning or the profit opportunities are, digital option and classic options are quite different. The classic options are that the amount of the profit is not limited in principle. This is due to the fact that the profit level or the value of the option is linked to the performance of the underlying. This is different from the new digital option because in this case, the respective broker already gives the maximum possible return when purchasing the option.

This is usually in the range of the simple option 80 to 92 percent. In addition, there is more often a so-called high-yield area for special types of trade, which also allows yields of up to 500 percent. Especially the bigger brokers for a digital option like BDSwiss or 24option have these option types in the program.

Gains on classic options are always available to speculators whenever they can resell the option at a higher price than they paid on the purchase. In the case of digital options, on the other hand, a specific event must always occur in order for the gain to be recognized. For example, a typical event for a new digital option as a call option would be that the price of the underlying is higher at the time the option expires than at the time of purchase. In this case, the speculator would then have made a profit, while the opposite event, so that the price would be lower than the purchase would lead to a total loss.

Which terms are available for the respective options?

The differences in terms between new digital and classic options are explained relatively quickly. With traditional options, maturities usually range between a few weeks and several months.

For the new digital options, the average maturities are much lower and often start at 30 seconds, depending on the offer of the broker. However, they rarely last longer than the end of the week. Thus, binary options are particularly suitable for speculative investors who want to make profits extremely quickly.

For whom are which options suitable?

In summary, there are similarities as well as clear differences between the new digital options and classical options. Due to the mentioned key figures and the significantly higher number of classic products in this category, these options are especially interesting for speculative investors who are already familiar with the market or are professionals. Instead, digital options are especially suitable for beginners or speculators who do not want to deal with the matter.

Above all, this is ensured by the simplicity of the new digital options, because with the classic variants, the investor only has to decide whether he believes that the underlying will be higher or lower at the time of expiry than at the time of purchase.

New Digital Option Vs Classic Option Trading

Bart Bregman

Hello, my name is Bart Bregman. I’m 27 years old and from
the Netherlands. As a professional day trader and blogger I spend most
of my time online. This lifestyle has allowed me to live as a digital
Nomad and travel all around the world.

My trading career began in 2014 as a side job. However, I transitioned
to full-time trading in 2016. Since then, I’ve been trading different
financial instruments on IQ Option. They include Stocks, Forex, Digital
option, Binary option, CFD, and Cryptocurrencies. I’m passionate about
trading. I’m always on the lookout for profitable strategies and new
skills that will help me trade better.

But as you might already know, the markets are quiet most of the time.
Besides analyzing the charts waiting for a good trading opportunity,
I’ll spend the spare hours contributing to iqoptionwiki.com. Here, I’ll
usually offer my expertise in the different trading strategies that I
use to help other traders better their skills."

Popular posts

7 Ways to Secure Your Relationships With Repeat Customers
May 20, 2019
Effects of Malpractice on the Healthcare Industry & Society
May 21, 2019
Fake apps could be infecting your Android devices with spyware
May 21, 2019
Health and Hygiene: Great Combination of Healthy Life.
May 22, 2019
Other posts by Bart Bregman
How to Trade on Forex with Leverage

How to Trade on Forex with Leverage

The prospects of trading in forex can be quite promising. One of the reasons why people stand to be profitable in Forex trading is that it is possible to get high leverage ...

Apr 27, 2019
  • Add Comment