Forex Binary Options – An Upgraded Stop Loss
Posted on December 18, 2009 by Yohay
Filed Under Forex Software | 9 Comments
The forex industry continues to evolve with additional resources for knowledge, and now with additional resources for trading. Binary options can be used as an alternative for the traditional stop loss, and for hedging. Here are a few examples for this.
Let’s say that your trade plan is buy EUR/USD in case of a breakout or to short it if it fails to do so. The level can be 1.4720, you invest $100 on a binary PUT option promising a 170$ return in case the pair will close below that level.
In case of a bullish break out, you need to cover the hedging cost, which is $100 – $10 in return = $90. So, I need to anticipate a relevant breakout that will give me enough pips in order to return at least $90. Now there are two scenarios:
- If the breakout is real, you win in the forex trade and lose the hedging in th binary option – this is like paying a small premium to the insurance compan, when everything is OK. The win on the trade should be much more than the hedging cost.
- If the breakout was false, you lose the forex trade, but the binary option covers the losses since I get back the $100 + $70. This 70% win should cover the loss (and sometimes even more) in the forex trade.
After getting used to this method, the stop loss point can be moved to a better place. Although there are premiums involved, binary options, if used wisely, can be the sweet dream scalpers were waiting for.
Apart from breakouts, these binary forex options can be used for trading news events. For example, if we take American CPI, and it comes out stronger than expected, the dollar would normally rise on anticipation for a rate hike. The trader would go short on EUR/USD and defend this position by a CALL binary option.
Want to try it out and learn more? Head to Start Options that specialize in binary options.
Update: As a promotion for Christmas, StartOptions offer a $25 bonus for people who arrive through Forex Crunch. So, you’re welcome to give it a try!
Disclosure: I’m affiliated with Start Options.
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Great looking site, I’ll give it a try.
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It’s a very dangerous game for newbies!!! dont even try this scam! To author: how about that situation when you lose both at forex and binary options? in forex your SL is hit nomatter of time…in binary options the expiration is hourly/daily/weekly. and there is not buy/sell call/put…you only buy. You can earn during major news events on hourlies but during flat moments you will lose with high probability… why? because you cannot execute before expiration no matter how much you are in-the-money.. how many times i lost gaining position in the last 5min? more than often!
i even tried to hedge within same hour…mixed results: think are you really ready to risk twice if you can lose twice? ie: EURUSD you open put at 1.4056 and suddenly it changes direction to upside..so you didnt have time to see this swing and you know you ll lose so to hedge you open call..but man, before expiration if it’s between your put and your call?? even by 1 pip!!! you lose both!!! haha !!
The graphic tool provided by this binary options brokers is poor and you have to check with your own platform…
the reward-risk ration is a big joke!!! 70% c’mon you put 20 or 30 bucks (minimum for binary options) and you win 34 or 52 total !!! so your win is not 34 it’s 14 !!! but if you lose you generally lose everything or they give you 5 to 10%..so what it will be 1 to 3 bucks? so you are willing to risk 30$ for a)+14$ win or b) +1$ ??? RRR 1:2 lol!!! ok if you bet 30$ and if you bet 3000$ !!! or you get rich in 1h or man you shot yourself…
my advice:
for indices: trade hourly when you see futures moving fast on major event buy SP, DwJ, Nsdq and European indices…same for trade ‘end of the day’ …
for stocks: newbies dont even try..
hint: at the EU opening you could see losers or winners they generally cant comeback within 1 hour..
another hint: dont open more than 3 calls or puts, dont add up to position within same hour. Dont hedge within same hour and same equity unless you are experienced and you know what you do..
for curenncies: trade the news, dont trade end of the day unless you re sure about market’s trend..
for commodities: take a look at SP futures..
there’s a theory about call-put ration but you can find it on wiki… however it wont help you with binairies…
have a good day and trade SMART!
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