Trading 2 Binary Options to Reduce Risk and Increase Profits

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    The Best Binary Options Broker 2020!
    Good for Beginners!
    Free Education + Free Demo Account!
    Get Your Sign-Up Bonus Now!

  • Binomo
    Binomo

    Only For Experienced Traders!

Trading 2 Binary Options to Reduce Risk and Increase Profits

It is a called a straddle or hedged trade, and involves taking two binary option positions in the same asset. It has the potential to reduce risk, and double your gain. Here’s how to do it. Assume call and put options that have an 80% payout.

Step 1. Initial Trade

Like any binary options trade, pick an asset and choose your direction. Say the price just broke above a descending trendline indicating the downtrend is over and the price could begin to trend higher. Buy a call option.

If the price continues to run in your favor you don’t need to do anything. Draw a trendline on the new uptrend, and as long as the price stays above that trendline you have nothing else to do because your option will expire in the money.

If the price drops below the upward trendline though, you need to make another trade.

Step 2. Opposing Trade

You are in a call option because the price is advancing in your favor. Then it breaks the trendline indicating a correction or even a potential downtrend is beginning. We now do not know if our call trade will finish in the money. Therefore, when the price breaks below the trendline we buy a put option. This way if the price continues to decline we will profit from the put option.

Scenarios

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    The Best Binary Options Broker 2020!
    Good for Beginners!
    Free Education + Free Demo Account!
    Get Your Sign-Up Bonus Now!

  • Binomo
    Binomo

    Only For Experienced Traders!

  • If the price continues to advance on the first trade, then there is no second trade. The price ran in your favor and you make $80 on a $100 investment.
  • If the first trade goes out of the money immediately and continues to trend against you, you do nothing. It may reverse course and produce a $80 profit, or if finished out of the money you lose the $100.
  • If there is a reversal then you take a second trade:

o If the price finishes above the strike price of the call, and below the strike price of the put, you win on both trades, netting $160 ($200 invested)

o If the price finishes below the strike of call you lose $100 on the call. But the price will be below the price of the put, resulting in a $80 profit. So you only lose $20 compared to the $100 risked on the original call trade.

o If the price finished above the strike of the put you lose $100 on the put, but the price will be above the strike of the call, resulting in a $80 profit. So you only lose $20 compared $100 if you had only taken a single put trade.

o It would be a pretty rare event, but is feasibly that you could lose on both trades. The price would need to whipsaw and trade below the call strike at the time of the call expiry and then surge above the strike price of the put at that expiry. This is unlikely to occur, but is possible. To avoid this, make sure there is some distance between the price you buy the call at and the price you buy the put at.

Final Thoughts

The strategy pays off if the price settles in between your call price and put price. The larger the area between the call and put price the greater the likelihood this scenario occurs. If your call and put are only 5 pips apart in the EUR/USD, that is a very small area for the price to settle in. But if your call and put are 30 pips apart, that provides a wider area for the price to settle in, more likely to result in a profit on both trades.

If your first trade is very far in the money, and is unlikely to expire out of the money, then there is no real reason to take a second trade. You’re better off just taking your 80% on one trade than taking a second trade which goes against the current momentum.

Only take the second trade if looks like the price is reversing–trendlines can be a useful tool here–because this way you hedge your bets. Due to the reversal it is unknown if the first trade will profitable, so by taking a second trade in the opposite direction you reduce your risk if only one finishes in the money, and you double up if they both finish in the money.

Binary Options Hedging Strategy

Binary options traders use hedging to ensure profits and reduce risks especially when volatility is high or market conditions become more unpredictable. Fluctuations in the market can cause trades that are seemingly successful to turn around unexpectedly. Hedging is used to figuratively trim off the price that will allow traders to trade in boundaries, making the cash flow more manageable.

Hedging has been used as a general trading strategy but is relatively new to binary options trading which introduced to the markets a few years ago. Hedging strategies quickly gained momentum for the reason that it is easy to understand and implement. One of the major features of hedging is their ability to extract the maximum benefits from the fundamental structure of binary options while minimizing loss.

Particularly, hedging allows binary options traders to take advantage of the fact that binary options only result to two possible outcomes when a trade expires. The success of hedging strategies for binary options depends on knowing the right time to execute the trades. Learning the precise moment to execute the strategy will minimize the uncertainties that can come up during the period of the trade.

Binary options trading was developed with simplicity in mind. However, trades still harbor an innate degree of risk. This is the reason why experienced traders recommend that new ones should only trade this new investment vehicle by using a sound and trusted strategy. This is also where hedging becomes an advantage because it is ideal for all traders, especially novices. Traders will be able to substantially increase their profits while minimize their risk in doing so.

Someone who is new to binary options would find that one of the best courses of action you he take is to learn how to use hedging strategies effectively. A new trader can quickly make up for his lack of skills and knowledge by implementing the strategy correctly. When a novice trader takes up strategies that involve hedging, he is able to learn more strategies that involve multiple trades and risk reduction.

Basically, there are only two possible outcomes that can result whenever a binary options trade has been made. A trader can either suffer a predetermined loss or succeed a predefined gain. Because of this, the risks involved are great especially that financial markets can experience high levels of volatility that can generate sudden price surges with practically no warning whatsoever. Such events can cause profits to turn into losses in the blink of an eye.

We have discussed many strategies to minimize these risks. In addition to those strategies, experienced traders recommend using hedging strategies. This effectively minimizes risk exposure while securing profits. Below is an example provided, so that new binary options traders may use it as a blueprint in coming up with their own strategies. Bear in mind that new traders need to perform this in a demo account first, before going live.

Example

Hedging in binary options is one of the easiest strategies to implement. Expert traders may have derivatives of this strategy, but the basics still stand. Furthermore, learning the foundations of hedging can branch out to other strategies that the new binary options trader can use. Because there are many ways in which hedging can be implemented, let us consider a popular method that entails combining both Call and Put binary options.

Let us use a hypothetical trader who chooses to trade FOREX particularly the Euro USD pair. Imagine that the binary options trader just received the following tip from his binary options broker. EUR/USD currently has a bearish bias with a put option price beneath 1.3650 and a call option price of 1.3350. Imaging the trade to expire in one hour and the price slipped under the 1.3650 level at 10:30 am EST.

The trader now decides to purchase a Put option based on EUR/USD. He first selects an expiry time at 11:15 am EST then deposits a wager of $100. This sum is 2% of his entire account balance and is in accordance with his money management strategy. The trader sees that the payout for trades is 75% and that no refund will be given for ones. His ratio at execution is therefore 80%:100%.

With about 15 minutes before expiration, the trader sees that the currency price has declined and that his trade is presently . However, volatility is high and the price is presently registering an oversold condition. In addition, the trader notices that price is beginning to rally so that it could possibly threaten his position by expiration. What can be done to protect his gains? The answer would be hedging.

By purchasing a CALL binary option with the same parameters as those of the original Put option, that is, same asset, expiry time and wagered amount, hedging can be performed. The trader now creates a new window of opportunity bounded by the opening prices of his Put and Call binary options. Consequently, the trader could possibly collect a double return if the price finishes within this range at expiration.

Even more importantly, the trader could have minimized his risks as the profit from the winning trade would practically negate the loss of the trade, should price fall outside this window when the expiry time elapses. As such, the reward– ratio now becomes $150:$20, which is an obvious improvement compared to when hedging is not performed. Instead of losing $100, winning $80 would mean that he would only lose $20.

As you can see from this example, using a hedging strategy is a simple yet very effective tool which can both secure your profits and reduce your risk exposure at the same time. As the financial markets can change drastically in volatile environments, you will find that mastering how to execute such a strategy proficiently is an excellent method to counter such unpredictability.

We will continue to provide you with more strategies that will help you improve your chances of success with binary options. In the meantime, you could check out our list of top brokers who can give you demo accounts so that you can practice hedging and use it efficiently.

Benefits Of Binary Options Trading

Top 10 Benefits of Trading Binary Options

If you have previously been involved in trading stocks, than binary options will be a quick learning process for you. Many of the same rules that apply to stocks are also used with trading binary options; additionally, having a good knowledge of the market will help you make informed decisions. While trading binary options involves a certain amount of risk, there are also many rewards. Below are the top 10 incentives to trade binary options.

1. High Return on Investment Potential

Due to the higher risk nature of binary options, typically the returns on your investment are also higher. Average returns are typically between 60-90%. This compares to a FOREX trader who would typically realize returns of approximately 10%.

2. Known Risk And Reward – Fixed Risk

You know right up front exactly how much you are risking and exactly how much you will profit if you win the trade. There is no risk of leverage costing your more than the amount you risked on the trade. Only your chosen amount to risk on any particular trade is at risk on that trade. You know exactly how much money you can possibly lose and how much exactly you can possibly make if you win. Binaries are unlike forex. It does not matter how high or low a price goes as long as it closes in the money for you. A single pip in the money is as good as 50 pips in the money. You still get the same payout on the trade either way.

3. Some Returns Even When You Lose

Although binary options produce higher payouts, the risk of these assets is inevitably higher than other investments. To help reduce this risk and make binary option trading more appealing, many brokers offer a small return on the money invested on a losing bet. For instance, on an option that did not go in your favor, instead of losing 100% of the initial investment, you may receive anywhere between 5-15% of that investment back. See our list of brokers for more.

4. Easy To Trade – Not Complicated Like Forex

Binary option trading platforms have begun to cater to investors who have little experience trading this style of assets. As such, websites have become incredibly user-friendly with features such as demo accounts, informative videos and live chat features to answer any questions you may have while trading. You also only have to make a prediction correct out of two possible outcomes. You do not have to worry with stop losses, leverage and magnitude of price movement when binary trading.

5. Fast Turnover Rate – Quick Profits In Your Pocket

One of the most intriguing factors of binary options is the fact that they have a very fast turnover and therefore a quick payout. Although this can differ across different assets, binary option expiry times are typically an hour or less, thus you can trade more options per day and therefore have the opportunity for more profit. Many of the daily binary option traders trade 15 or 30 minute options. And the ones that really feel like gambling trade the extremely exciting 60 second options. You can see which brokers offer the one minute options on this page: https://www.bestfxbrokers.com/binary-trading/trading-school/beginner/60-second-options/.

6. Free Trading Accounts With Select Brokers

With most brokers offering free accounts, signing up to trade binary options has never been easier. This means that all of the money you deposit in your account will go directly into your trades. Keep in mind however, that in order to qualify for a demo account, many brokers require a minimum deposit. Check to see which brokers allow smaller deposits or even free demo accounts. Potential buyers can place as little as $100 into an account and gain access to a full demo account where they can trade with fake money at no risk. A credit of trial money is then awarded in order to help you gain a better feel for investing in these options.

7. Variety in the Types of Assets That Can Be Traded

As you learn more about trading binary options, you will soon realize that there is an abundance of different assets that are available to trade. This provides a great way to diversify risk and allows investors to control the amount of risk they want to take on at a given time.

8. Access to More Assets

In addition to the many different types of assets available to invest in, binary options also allow investors access to types of stocks that would otherwise be too expensive for the average person. Binary options allow for this since you are not investing in the stock itself but just in an overall prediction, thus by not owning a piece of the company, you can purchase the option at an inexpensive rate.

9. Easy For Beginners To Get Started

Whether you are a seasoned veteran when it comes to trading stocks and options or a beginner, there are different types of binary options, each with its own level of risk and difficulty. From simple call and put options to double no touch binary options, you can work your way up to whatever level feels comfortable to you. From vanilla options to exotic options there are a wide variety of trading choices available. Anyone can win and anyone can trade. It is designed to be straight forward for anyone off the street brand new to trading. There are also more complex options with higher returns the experienced experts can trade for big risk, big reward paydays. Something for everyone.

10. Excitement Factor – You Can Make So Much Money So Fast – It Is Exciting

The final reason for trading binary options is the level of excitement it provides. Due to its fast pace and inherent unpredictability, investors will find that, despite the high level of risk, binary options provide a new and exciting option to trading that they can use exclusively or simply once in a while.

There you have it, whether you are more interested in the rational side or the entertainment aspect, binary options have a lot to offer. Once you begin to learn more about them, can become an essential part of your investment routine.

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    The Best Binary Options Broker 2020!
    Good for Beginners!
    Free Education + Free Demo Account!
    Get Your Sign-Up Bonus Now!

  • Binomo
    Binomo

    Only For Experienced Traders!

Like this post? Please share to your friends:
Binary Options Trading
Leave a Reply

;-) :| :x :twisted: :smile: :shock: :sad: :roll: :razz: :oops: :o :mrgreen: :lol: :idea: :grin: :evil: :cry: :cool: :arrow: :???: :?: :!: