Risk Free Binary Options Trading
Next to be discussed is risk free binary options trading, but before you jump up and down too much at the thought of this, be aware that no type of market trading is ever 100% risk free. When the term risk free is used at is pertains to binary options trading, it really means that risk is reduced as much as possible. Let’s take a look at this a little closer.
So how exactly does a trader make a trade as risk free as possible? This is accomplished by placing one or more trades on the same asset that allow for several different outcomes.
When it comes to making this multi-faceted trade, a trader will buy options on an asset in option+ mode in two different directions, as the asset trends one way then the trader will then sell call options at different times to bolster the trade. If the trader calls it right, then they will minimize losses and that should lead to the overall trade being profitable. Does it happen all the time? No, but it does happen a majority of the time and certainly gives you a chance at getting at least a little money back. That is why trading this way is called risk free trading.
The drawback to this type of so called risk free trading is that you have to constantly monitor your computer screen to know when to sell an option before it expires.
Just in case you did not know or remember; as pertains to normal binary options rules, when you make a trade the option will expire at a predetermined time. As a result of this, a risk free trading strategy will only be able to take place in the Option+ mode of an online broker that offers it.
The trade is initiated by buying a call option and then immediately placing a put option after it. Once that is done, then you will monitor the assets trend until it becomes clear that it’s definitely trending in one direction or the other. At this point you must quickly sell the option that is not trending in the current price direction; the faster you do this, the less you will lose. This quick sell off normally keeps losses less than 25%.
Since you are making profit on the properly trending trade, it will normally offset those losses and more. In order to get the maximum profit you will have to let the trade reach its expiration.
For those that might not have realized that you can sell an option before it expires, it’s what is called Early Closure. On rare occasions you can use this technique to actually make profit on both options.
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References and Further Reading:
2. Indicators DZ and RDZ: Essence, Methods of Calculation, Signals and Rules of Trading (A Plastun, S Kozmenko – 2011)
3. The Cost of Liquidity in the FX Market (I Domowitz, M Borkovec – 2014)
5. Measuring and modeling investment behavior in a social network (AE Dusenbery – 2012)
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