Published On: Thu, Nov 22nd, 2012

Binary Options Strategies

Binary option trading presents a less stressed way to invest on the global stock exchanges than any other investments types. Consequently, you will enhance your ability to earn meaningful and constant profits by trading them. After you register an account with an applicable binary option broker, you will then have the possibility to acquire returns as high as 85% of your deposit per trade using expiry times as low as 1 minute.

You can expand your profit potential even more while concurrently minimizing your risk exposure if you devote your time to learning and mastering binary option trading strategies such as the following:

  1. Pairing is also termed hedge and double position and is a shrewd strategy which can generate windows of opportunity for high profits while diminishing your risk exposure.

For instance, assume that you have triggered a ‘CALL’ binary option using the EURUSD currency pair with a strike or opening price of 1.2600. Sometime later, envisage that you have attained a promising position and are now in-the-money with the current price standing at 1.2700. However, you are stressed that a severe price retraction may ensue which could clean out your profits and even produce a loss.

To defend your trade from such an eventuality, you could, at this point, instigate a new ‘PUT’ option and pair it with your initial ‘CALL’ one. By doing so, you would produce an opportunity window between 1.2600 and 1.2700. This is because if price terminates within this range at expiration then you will collect a double payout.

In addition, you would substantially minimize your risk exposure because should price fall outside this window at expiry time then the profit of one of your options will almost totally eliminate the loss of the other.

2.  Binary options betting: You should initiate this strategy just after your selected assets receive a serious but unforeseen price surge. The binary options betting strategy exploits the concept that many traders react in a very foreseeable way after such occasions happen.

3.  Stop-loss trading: Many traders deploy binary options as a procedure to efficiently hedge against their other investments. For instance, assume that you are trading the EURUSD currency pair and you are thinking about placing a stop-loss in order to safeguard your account balance from enduring a significant drawdown.

Instead of locating a standard stop-loss, you could instead trigger a binary option in the opposing direction to your Forex trade by using the EURUSD as its underlying asset. This action would then create a very effective defence for your EURUSD trade.

However, although this concept seems straightforward at first sight, using it successfully is reliant on on your understanding about features such as trading asset, trading style, risk tolerance, and market conditions.

4.  Index-asset divergence trade: This is another preferred strategy that hedges a binary option using on a currency pair with one whose underlying asset is the trade index that is correlated with that pair.

For instance, envisage that you choose to instigate a ‘CALL’ binary option with EURUSD because you have ascertained that the value of this currency pair will appreciate in the short-term. To hedge this bet, you could then initiate a ‘PUT’ binary option based on the Dow Jones Index because its directional movements are strongly correlated to those of the EURUSD.

As explained above, if you exploit the power of well-proven binary options strategies you can more successfully trade currencies, stocks or commodities then if you attempt to do so directly. This is because binary options are an investment type that possesses the inherent attributes which are capable of dramatically reducing the complexities of your decision-making.  They have the ability to achieve this objective because you can benefit from many advantages that they possess compared to other investment types including traditional options. Consequently, you will then discover why binary options are becoming the fastest growing and most popular trading tool in the investment industry today.

For example, binary options provide a pre-defined payout and loss structure.  Therefore, you will know precisely the size of your potential profits and losses even before your contracts are executed. Consequently, you will be able to assess your risk exposure per trade with accuracy because they supply you with a proven structured risk and money management strategy.

Go back to the binary options guide.


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About the Author

- Marcus Holland has been trading the financial markets since 2007 with a particular focus on soft commodities. He graduated in 2004 from the University of Plymouth with a BA (Hons) in Business and Finance.