Day trading Digital 100s allows traders to take a straightforward yes/no position on commonly traded financial markets. It is perhaps little surprise then that these uncomplicated propositions are gaining popularity. This page will break down the four different types of digital 100s, before covering markets, benefits and risks, plus strategy and regulation.
Brokers with Digital 100s 2020
What Are Digital 100s?
Digital 100s rest on a single statement. If you correctly speculate on a market event taking place, you turn a profit. However, predict the outcome incorrectly and you will lose your initial capital.
Let’s say the digital 100 statement reads ‘Dax 30 to finish up’. If you believe this to be true, you can buy the digital 100. Alternatively, if you think this won’t happen, you can sell.
An attractive feature of trading digital 100s is the certain degree of flexibility. This is because you take a position based on an event taking place within a specific timeframe. However, you can also trade within that timeframe.
So, you could start trading on a one hour digital 100 when there are just 15 minutes left until expiry. You will often find the pre-closed period for digital 100s is between 30 seconds and two minutes preceding expiry. However, this is dependant on both timeframe and instrument.
You will see the price of digital 100s ranges from 0 to 100. This represents the probability the broker believes there is of the event happening. To make that decision, underlying market behaviour will be analysed and the length of time the digital 100 has until it expires, will be taken into account.
Quite simply, the closer the price is to 100, the greater chance the broker believes there is of the event occurring.
Returning to the Dax 30 example above, if the digital 100 statement were true (Dax finished up), the price would settle at 100. However, if it were not true, and it either finishes down or does not move, then your profit will depend on the amount per point you have wagered, as well as the difference between your opening price and the digital 100’s closing price.
You can break digital 100s into four distinct trade types:
- Ladder – You must decide whether the settlement price (reference price which decided whether you have won the digital 100) will reach or exceed your chosen strike price (target price against which the digital 100 verdict is decided) when the digital 100 expires. Therefore, you would buy if you think the settlement price will exceed your settlement price. Alternatively, you would sell if you are of the opinion the settlement price will finish below your strike price.
- One Touch – Ladders and One Touch digital 100s trading is similar. With the latter, your trade is based on whether you believe the settlement price will hit your strike price before the digital 100 expires. If yes, you would buy. If no, you would sell.
- Up/Down – Up/Down digital 100s trading is slightly different. Usually, you will have just the one strike price. This will be the preceding period’s close. You buy and sell based on whether you think the settlement price will finish at or above the last period’s close when the digital 100 expires.
- Range – Unlike Ladder and One Touch digital 100s, with Range digital 100s, you must decide whether the settlement price will close within a certain range when the digital 100 expires.
Trading Digital 100s appeals partly because you can speculate on some of the world’s most active financial markets. For example, you can trade indices, commodities and forex pairs. Below are just a few of the popular traded instruments available:
- FTSE 100
- Dax 30
- Dow Jones Industrial Average
- Major currency pairs, including EUR/USD, GBP/USD, plus USD/JPY
- Gold, silver, and Crude Oil West Texas
Having said that, what you can day trade Digital 100s on will depend on the broker you go to. However, as popularity for Digital 100s increases, so will the choice of markets.
How To Trade Digital 100s
Day trading on digital 100s is relatively straightforward. You need to follow just a few basic steps below to get setup and start speculating on financial markets.
Step 1 – Choose A Type
Choose between the four digital 100s types listed above. Also, choose between the listed expiry options.
Step 2 – Choose An Instrument
Pick a product/market, for example, the GBP/USD currency pair or the Dow Jones index. A useful tip would be to concentrate on a market you have a thorough understanding of. You may also want to consider how readily accessible relevant data is.
Step 3 – Choose A Strike Price
Look down the strike list and select a strike price. Do you want to buy or sell?
Step 4 – Enter Your Trade
Enter your trade size. When you do that, consider however much you stake as you could potentially lose all of this. Once you have done that, place your order on whether you think the event will occur (buy) or will not (sell).
Step 5 – Monitor
You can sit back and monitor your position. You should be able to follow your position by bringing up a chart. Also, you may have the ability to exit or to some extent, reduce your position size before the pre-closeout period.
Why Trade Digital 100s
There are a number of benefits to trading with digital 100s. These include:
- Timing – Short-term trading on digital 100s allows you to take positions on some of the world’s most influential markets with timeframes starting from as little as five minutes. This is ideal for active intraday traders.
- Simplicity – You don’t need to worry about a range of outcomes. You are simply concerned with a yes or no proposition.
- Accessibility – You may be able to benefit from the choice of a desktop or mobile-based platform. This could enable you to execute trades when you are on the move or on your way to work.
- Risk– Because you know how much you could potentially make or lose before you place your trade, you don’t need to worry about opening yourself up to substantial unknown losses.
- Charting – Some traders may worry they will have to sacrifice advanced charting features. However, many providers offer sophisticated and easy-to-use platforms with up to 100 indicators and drawing tools.
- Opportunities – You also have the ability to trade when markets are moving sideways. This could mean generating profits during periods of low volatility from less significant market shifts.
Despite the number of attractive benefits, there are also certain drawbacks and risks to trading with Digital 100s. These include:
- Loss potential – Despite the limited risk, in periods of volatility, sharp market swings can still result in significant losses.
- Challenging odds – It is important to note the odds are often biased in the favour of the broker. So, an effective strategy will be required to generate consistent profits. Having said that, competition to win customers may improve odds somewhat.
- Complex risk prediction – As a result of trading on short timeframes, consistently predicting market moves can prove difficult.
- Limited trading tools – Although dependant on the Digital 100s provider, you will often have access to less trading materials and analytical tools when compared to other trading products.
With a number of online day trading scams around, it’s important to check your product is legitimate and properly regulated. There will then be certain rules and regulations the digital 100s provider will need to adhere to.
In the UK, for example, you may want to check the broker is regulated by the Financial Conduct Authority (FCA).
Although the proposition may be simple, consistently being correct is not always straightforward. So, you will need to develop an intelligent strategy, considering the elements below.
Unlike spread betting and CFDs, you do not need to apply regular, trailing or guaranteed stop losses into your digital 100s trading plan. However, you do need some form of money management system.
One suggestion is not to stake more than a few percent of your account balance on a single trade. This will prevent you losing too much capital in a short space of time. Then when your strategy starts producing consistent results, you can increase your risk parameters.
Whilst some individuals concentrate on trading around news events, technical analysis may also improve your market prediction. So, check your provider offers a charting package with all the chart types and indicators you may want to use. As a result, you should be able to carefully analyse the instrument you are looking to trade.
One Hour Ladder Trade
Below is an example strategy for trading the GBP/USD currency pair. Let’s say you believe the pair will move higher once the US non-farm payrolls announcement is made at 13:30 GMT.
Also, let’s say that at 13:00 there is a one hour digital 100 priced at around 10.8 on the sell side and 17.00 on the buy side, for a strike price of 1.1587500.
You think that by the digital 100 expiry time of 14:00, the price will have hit or exceeded the strike. So, you choose the buy price and fill in your order ticket.
Now you place a buy Ladder order with a size of 1:
Your trade size has a maximum profit potential of £83.00. This is because profit/loss = (settlement price – purchase price) x size. So, potential maximum profit = (100 – 17.0) x 1.
Your maximum potential loss is £17.00. This is because profit/loss = (settlement price – purchase price) x size. So, potential maximum loss = (0 – 17.0) x 1.
Now if the non-farm payrolls announcement is as you expected, you can monitor the market and collect your £83.00 profits when the expiry time is up.
For further guidance, see our strategy page.
Final Word on Digital 100s
Trading digital 100s offers a straightforward means of speculating on popular financial markets. In addition, it comes with limited risk because you know how much you will lose before you take a position. Having said that, generating consistent profits will still require careful technical analysis and an effective strategy.