Speaking about the disadvantages of binary options trading, the main thing is that traders always loses more money than winning on the deal. You will ask, is there a way to change it? Is there any possible outcome to even doubling earnings? The answer to these questions is similar and very simple – hedging of transactions.

So why the trader always loses more? So for example, when executing transactions on the exchange, the probability of loss of invested funds will always be more than profit. This is because buying the contract trader constantly pays the fees, so, he already has a small loss when opening the deal. This assertion is equivalent works with binary options, as after the closing the deal with profit, the trader gets always less than the could loss.

Take for example, the payout percentage broker has set at the level equal to 75%. In this case, not to be at a loss, more than half of trades held by the trader should be closed with a positive result. In other words, the percentage of winning trades should be approximately 57% = 100% / (100% + 75%). However, the ratio of profitable trades to unprofitable should be about 3:1, that is, if the trader wishes for beneficial result, ie the trader hsa to have not more than three of the negative results in a series of 10 trades (given the fact that the percentage of payout is quite high).

With the aim to reduce the impact of trade costs on the final financial result, use different strategies to reduce risks. By far the most common and time efficient way to minimize risks is hedging. The purpose of this method is the insurance of the trader from incurring potential losses on deals. But with all this, it is possible to reduce the expected profit, as it is the opposite depends on the magnitude of risk. However, in some cases, this method gives the opportunity to the trader double the profit from the transaction.

Secure binary options trading haging

(!) Trader has to understand that hedging should be more accurately viewed as a method of capital management than as a one of trading strategies.

WAYS TO HEDGE BINARY OPTIONS

Out-of-The-Money (OTM) is an option without any internal value at the time of the transaction. It attests to the fact forecast made by the trader was not justified or is not justified at the current time. In this case the trader will lost the amount invested in the option. Therefore, for Call option the real price is below the strike price, while for a Put option – above the strike price. It is considered that the option remains deep in the loss, when difference between the exercise price and the real price is quite large.

At-The-Money (ATM) – leads to a zero result, in the case of immediate execution. This situation may occur if the current price of the instrument is equal to the strike price. But this is quite common on the market situation, as do occasionally get to make a deal for the same price.

In-The-Money (ITM) — leads to a positive outcome of the transaction, in the case of immediate execution. In other words, if at the time of transaction execution, the trader is shown “In-The-Money”, he will get the expected profit. Here, a Call option will be “in the money”, if the price of the option is located above the strike price. Speaking about a Put option — the price will be in the opposite sense, with position below the strike price. It is considered that the option is deep in the money, when the price has gone far.

THE PRINCIPLES OF TRADING USING HEDGING

• Strategy selected by the trader signals about the need to start.

• Determination of the investment amount, expiry time and the type of option (Put/Call).

• Price movement occurs in the desired direction and sufficient time remains prior to expiry. However, the strategy provides the trader a new signal, the inverse of the first signal. (There are a number of different reasons, for example: the weakening of its trend).

• Purchase a binary option of opposite type to the first. In addition, defining the expiry time same as in first transaction in order both of the options were performed at the same time.

• Waiting the time of option execution.

Hedging is a great way to leveling the risks associated with binary options trading. The use of this method for binary options extends the capabilities of the trader and sometimes gives the chance to double the expected profit. This strategy is equally good in the case of using short-term and long-term options. A critical point here would be that if trader carefully checked allows the broker to quickly and easily manage the period of expiration and buying an option at short period of time. Therefore, remember, that hedging will be most effective if you use a proven trading strategy with an average success rate of not less than 60%.

WE RECOMMEND YOU TO TRY THIS METHOD OF MINIMIZING THE RISKS AT TRADING PLATFORM IQ OPTION, WHICH HAS CONFIRMED THE STATUS OF A RELIABLE BINARY OPTIONS BROKER.

OPEN DEMO ACCOUNT

“General Risk Warning: Binary options trading carry a high level of risk and can result in the loss of all your funds.”

HEDGING IN BINARY OPTIONS TRADING
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