Binary Options Trading Strategy

Forex trading is very appealing especially due to the high possible winnings. The financial magazines are full of experienced traders that build up their fortunes only through forex trading. These old school forex traders invested many years and a lot of money into forex to reach this extraordinary level of market prediction.

The online forex trading industry opened the forex exchange market to any individual interested in investment, speculations or just forex amateurs. The minimum investment for forex accounts is small these days, but the forex trading profitability is yet small so a trader still needs to trade huge amounts of money to win as much.

The newly developed binary options trading eliminates this drawback by offering incredible profitability rates. Some binary options brokers offer up to 85% profit rate for options expired in the money (winning options). This high profit rate is backed by a refund of up to 15% of the invested amount for the options that expire out of money (losing options).

The two strong points stated above turn binary options in one of the best methods to invest small amounts of money with high profitability therefore with large winnings.

Forex trading strategies

Like in any other activity that involves earning money, in forex trading, the internet and the specialized literature is full of different strategies that are presented as sure ways to increase the earnings. For classic forex trading the thorough technical analysis and a good understanding of the way the market works and react in different situations are the only guarantees for successful trading positions.

In classic forex no trading strategy will ever succeed to replace the knowledge and skills due to the complexity of the market and the large number of factors that influence it. On the other hand in binary options trading the situation is quite different.

The special features of the binary options do not allow too much creativity in the trading manner but some simple strategies can make the difference when it comes to overall profitability.

In binary options trading, using the right strategy could help an amateur trader to win just as much as an experienced one. But this doesn’t necessary mean that in binary options is useless to apply technical analysis. On the contrary, using the technical analysis in binary options trading just like in forex trading could increase the profits. If a trend or a resistance is identified using the analysis indicators the chances of the corresponding binary option to expire out of money are almost zero.

Binary options trading strategy

In binary options trading there aren’t many strategies to use, but there is one thing you can do to increase your overall earnings. The easiest way to do that is to buy two options on the same asset but in oppositions. This strategy requires some specific conditions in order to work.

For starters you need an option already bought (put or call, it doesn’t matter), that is still in the money and it will expire over some time. If you find yourself in this particular situation you can apply a simple strategy to double your winnings or to strongly reduce the possible loses.

In this point you should also buy the opposite option for the same asset. So, if you invested $100 in a PUT option for, let’s say EUR/USD, now you should invest another $100 for a CALL EUR/USD option.

Example

Option 1

Amount: $100

Type: PUT, touch price: 1.4630

Asset EUR/USD

Return: 75% ($75) if in the money and 15% ($15) if out of money

Expiration time: end of day

During the day you check out the PUT option and the price is at 1.4580. Now you can buy the second option.

Option 2

Amount: $100

Type: CALL, touch price: 1.4580

Asset EUR/USD

Return: 75% ($75) if in the money and 15% ($15) if out of money

Expiration time: end of day

Now you have two opposite options that have the same expiration time. In this situation there are only two possible outcomes:

- If both options expire in the money (at expiration time the price is between 1.4580 and 1.4630) your profit is $150 for an initial investment of $200.

- If one option expires in the money and the other out of the money (the price is lower than 1.4580 or higher than 1.4630) your return for the winning option is $175 and for the losing option $15, which makes a total return of $190 for $200 invested. In this case you lose only $10 compared to a profit of $150 in the first situation.

It’s easy to notice that applying this binary options strategy the loss is minimum while the profit is maximum.

Author: Mihaela Florea