What Is a ‘Barrier Option,’ and Why Is It Typically an OTC Product?
A barrier option is an exotic option whose payoff depends on whether the underlying asset's price reaches or 'hits' a pre-defined barrier level during the option's life. Due to the unique and complex nature of the barrier condition, these options are customized to the user's specific risk exposure, making them unsuitable for standardization and thus primarily traded in the OTC market.
Glossar
Barrier Level
Trigger ⎊ A barrier level functions as a pre-defined price point for a derivative contract, initiating specific actions upon being breached, and is integral to managing exposure in cryptocurrency options and financial derivatives.
Barrier Option
Trigger ⎊ These derivative instruments activate or expire based on the underlying asset reaching a specific price threshold.