Forex Tips and Advice

As a new binary options trader it is imperative to prepare yourself mentally and emotionally for the highs and lows that come along with binary trading. Hopefully you’ve taken the time to select a good binary options trading platform, one that is easy to use and fits your style of trading whether that be forex, stocks, commodities, or index trading. So now it’s time to trade, where should you start. Well you know they say those who fail to plan, plan to fail. You need a solid binary options strategy. So that’s what we have for you outline below.

The Early Hedger Binary Options Strategy

The binary options strategy most newbies use relies on a basic understanding of technical analysis. If you’ve never used any type of technical analysis to read charts, we suggest reading a book on candlestick charting, which seems to be the tool of choice of most binary traders. Incorporating candlestick charting into your binary options strategy will allow you to pick entry and exit points more efficiently. The dynamics of the early hedger binary options strategy can best be summarized as such:

1.    Determine proper entry points for your binary option trade early in the expiration cycle (e.g. 10:00-10:15)
2.    Allow the underlying time to make its move, closely monitoring opportunities to increase the size of the trade or hedge.
3.    Start looking to place a potential second trade roughly 10 minutes prior to the lock out period
4.    If the position is deep in the money your best bet is to probably leave it alone.
5.    If the position is deep out of the money you can leave it alone and move on to the next trade or attempt to place 2 more trades to lock in a profit zone.
6.    If the position is trading right around the initial entry point, you may want to consider placing the opposite binary trade position to limit maximum losses.

Follow these six steps to guide your initial trading actions. This early hedger binary options strategy is a sound way to control the potential risk of an otherwise risky venture. Under this binary options strategy you always give yourself a chance to lock in profits or exit bad positions while maintaining an eye on potential loss. Other popular binary strategies expose traders to substantial risk with no consideration for safety. As a new binary options trader you want to stay in the game for as long as possible so try to follow the guidelines laid out in this simple binary options strategy when starting your trading day.

With many options (no pun intended) for traders to choose from, how should one go about selecting a binary options broker? There are several things you should keep in mind when choosing the most appropriate binary options broker for you, the most important of which we highlighted below:

Types and Amount of Assets Available To Trade

Each binary options broker has a different set of underlying assets available to trade, so you’re going to have to do a little research on your own if you are interested in a specific asset. For example I like to trade Intel. Unfortunately not every binary options broker offers Intel binary options, so that may be the determining factor in selecting one binary options broker over another. But for the most part the most popular, highly traded, underlying assets are represented on most of the broker trading platforms. So whether you prefer trading forex, commodities, indices, or plain equities a leading binary options broker will likely have a variety of individual assets for you to trade. The pure number of the underlying assets will vary by broker, so be sure to do your homework before signing up.

What Expirations Are Available?

Another question you will need to ask yourself is what time frame are you most interested in trading? A quality binary options broker will most assuredly have binary options that expire in one hour so you won’t have to travel very far if that is all you are interested in. However, if you are also interested in trading either shorter than an hour or greater than an hour binary options with your binary options broker then you will have to dig a little harder. We’ve seen broker with expirations of as little as 15 minutes all the way up to one month. Different trades present different time frames and opportunities so binary options broker flexibility will be huge if you don’t just want to focus on hourly expirations.

How Long Is The Lock Out Period?

This may be the most important binary options broker characteristic. The lock out period is essentially the time frame during which you can no longer alter the trade dynamics for a specific expiration. This is the period of time before expiration. A typical binary options broker lock out period is around 10 minutes, with some offering 5 minute lock out periods and others hitting you with a 15 minute lock out period. It is in your best interest to trade with a binary options broker that has a low as possible lock out period. The more control you have in being able to either add to or hedge your position the better your results should be.

The answer to how often you should place a binary option trade is really determined by what kind of trader you are. Some people are very picky about placing a binary option trade and will only do so when conditions are ripe for their overall strategy. I think this kind of discipline helps new binary options traders significantly in minimizing potentially disastrous effects of overtrading. Pick a system you’ve either tested yourself or have purchased and believe in and only place a binary option trade when your system says so. This way you can easily determine whether the system you are using is goo in picking binary option trade entry points or not. Trading binary options is often an exhilarating activity, filled with emotional swings, being disciplined in your approach makes it a lot easier to handle these volatile times and is a great learning tool in how to handle pressure and adversity not only in binary option trading but in life in general.

The Classic Over-Trader

This is a trap many inexperienced traders fall into when they start trading binary options. While the goal may be to exhibit patience and discipline when deciding to place a binary option trade, oftentimes our emotions and ego get in the way and we start to place binary option trades based on a gut feeling. Some binary option traders do really well following their gut instinct at first but eventually things turn and they end up having to go back to the disciplined system they started off using. We see theses over trading tendencies most often amongst hedgers. While careful consideration is taken before placing the initial binary option trade early in the expiration cycle, all bets are off once the underlying asset has a chance to move around. Recall that there are times hedgers find themselves locked into a two trade position that guarantees a loss, albeit a small one. Well no one likes to lose right? So what you’ll see is traders looking to turn a small loss into some sort of gain at the risk of losing even more. This is bad form. A discipline trader following a disciplined system knows there is no harm in taking small losses on positions. The goal is to live another day to place another binary option trade and this can not occur if you continue to over trade, placing risky trades to avoid small losses. Our advice, take the loss and move on to the next trade.

Forex binary options are slowly but surely starting to gain in popularity amongst traditional forex traders. Why you ask? Because forex binary options present several advantages to traders that simply can not be duplicated in traditional forex trading. Let’s take a look:

Expiration Benefits of Forex Binary Options

Forex binary options typically expire every hour.  While this may not seem like a big advantage to some, a disciplined trader can truly appreciate this benefit. Instead of placing stop-loss orders and/or waiting for the position to reach a certain level before exiting, forex binary options either incur a gain or loss every hour. No need to worry about 2 hour or daily performance, one hour gets you in and out.

Risk Management Benefits of Forex Binary Options

The moment you place a forex binary options trade you immediately know the maximum potential gain and maximum potential loss of the trade. Even if you combine a few forex binary options trades together, it is very easy to determine how much capital you are placing at risk and the potential reward for this risk. This is a huge advantage over traditional forex trading which doesn’t inherently have a risk management component and requires careful monitoring in order to efficiently and effectively manage risk. Actually traditional forex trading in some ways is exactly the opposite of forex binary options trading from a risk management perspective, in the sense that extreme leverage increases the risk of a position blowing up your whole portfolio!

Binary Options + Forex Trading  = Win-Win Scenario

Smart forex traders recognize the benefits including forex binary options in their portfolio can have on overall performance. So what you are seeing is a growing number of traders using forex binary options to hedge their positions. Instead of panicking when a forex position starts to move against you, consider placing an appropriately sized forex binary options trade in the new direction of the underlying. Because of the large return characteristics inherent in binary options in many instances an appropriately hedged forex position can yield a profit no matter what direction the underlying moves once the forex binary options position is established.

This is the new paradigm shift in forex trading. You are exposing yourself to too much risk and possibly even limiting your profit potential if you are not including forex binary options in your trading activities. So find a solid binary options trading platform and start implementing a disciplined hedging strategy today that can save you money.

What exactly are digital options and why do I can keep running into that term when looking for information on binary options? Has this happened to you? It can be confusing at first but let me put your mind at ease; digital options and binary options are one in the same. The term “digital options” emanated out of Europe, as most financial derivative products do, and has been and is still used to describe a financial instrument that has exactly two outcomes. In addition to “binary options” digital options are also commonly referred to as “all or nothing options” and “fixed rate options (FROs)”.

Digital Options Characteristics

Trading digital options is a simple game, you either win a specified amount or lose a specified amount all dependent on how the underlying asset moves. This is much different than regular options where the amount someone wins or loses is calculated based on the Black Scholes options pricing model which requires a variety of inputs including a volatility assumption, dividend and interest rate estimates, as well as definitive time and strike price component. As you can see, digital options pricing is a much simpler process as compared to Black Scholes which requires advanced math to calculate the value of an option.

Digital options provide traders an easy way to monetize their views on the short-term direction of an underlying asset. If you believe the price of an asset is going up in the next hour simply purchase a digital call, and if you believe the asset is going down in the next hour purchase a digital put, can’t get much easier than that.

But what do you get for picking the correct direction of digital options? Well digital options returns vary by platform, but you can expect to receive somewhere in the 70% to 90% range for winning trades and lose anywhere between 85% and 100% for losing trades. Each digital options trading platform will provide unique return characteristics for each specific asset so make sure you note the risk/return before placing a digital options trade.

Digital options are typically offered across a wide range of assets. The most common assets include forex (currency pairs), stocks (mostly U.S. and European based), commodities (gold, silver, crude oil, natural gas, copper), and indices (most major global indexes).

With expiration times spanning between 5 minutes all the way up to a month you should be able to find a use for the simplified risk/return features of digital options for your asset and event time frame of choice.

Your binary trading platform choice plays a critical part of your ultimate success as a binary options trader. While they may look the same, each binary trading platform is definitely not the same. Speed is essential in any trading activity, especially when the difference between winning huge and losing big is a mere fraction of a penny apart. That’s why it’s important to get comfortable with the defining characteristics of your binary trading platform of choice as quickly as possible.

Binary Trading Platform Charting Capabilities

Each platform provides some sort of charting functionality so you can easily see graphically where you are placing your trades. Some charts on the various platforms are better than others. Make sure you pick a binary trading platform that has real time graphs that can easily be seen next to the trade entry area. While this seems like a no-brainer, do not overlook this seemingly minor point. Remember how we said speed is everything, well the difference between using a binary trading platform chart and using an independent chart outside of the platform can cause you to miss a potential trade by seconds, time that could be critical in determining a winning trade and losing trade. I learned the hard way. When I first started trading binary options I used independent charting sources to determine my entry points. After losing a few trades by 0.0002 cents (seriously!) I decided I couldn’t risk the time that it took to look back and forth and miss a solid trading opportunity.

Binary Trading Platform Order Entry

Another seemingly minor point here but do not underestimate the importance of selecting a platform that is easy to switch between purchasing a put or call. I also learned this one the hard way (see a pattern here!) A lot of times you will find yourself switching back and forth between puts and calls, especially when a stock pattern is at a critical juncture that could yield a quick breakout or strong reversal. Make sure your binary trading platform of choice switches easily and quickly between puts and calls because if there is a significant lag you may find yourself purchasing a binary call when you meant to purchase a binary put. There is nothing worse than reading the charts correctly, placing a trade based on your reading, then realizing you selected the wrong put or call by accident. Remember this is binary options trading, there are no re-dos, no mulligan’s, you have to live with your decisions even if they were made in error. So take some time to get comfortable with the order entry functionality of your favorite binary trading platform, it could mean the difference between an exhilarating win and a crushing defeat.

Binary trading has taken the trading world by storm over the past few years as day traders who have been used to scalping miniscule returns for small stock movements can now generate returns up to 90% for these same small stock movements through binary trading.

In its most simple form binary trading is a direction based, win loss proposition. If the trader is correct in picking the direction of the underlying asset in a given time frame he/she will win a set percentage (typically between 60% and 90%), and if the trader is incorrect in picking the direction of the underlying stock in a given time frame he/she will lose anywhere between 85% and 100% of the trade. Keep in mind in binary trading the magnitude of the underlying asset move is meaningless, the direction is all that matters. This can best be described in an example:

For instance say a trader thinks the price of Google is going to rise over the next hour, he/she could purchase a binary call option expiring at the top of the hour, at Google’s current price. If the binary call option was purchased with shares of Google trading at $600, the trader would generate the winning return percentage (60-90%) if shares finished anywhere above $600 upon expiration. So whether shares of Google finished at $600.01 or $699 the trader would only generate the specified winning percentage. This is the essence of binary trading.

So who is exactly using binary trading as part of their daily trading activities? We’ve seen the most binary trading activity from stock day traders and forex traders. The one thing successful stock and forex day traders have is the ability to forecast price movement over short time intervals. If this best describes you then you need to jump on the binary trading train as soon as possible. However, price speculation isn’t the only way these successful stock and forex traders are incorporating binary trading into their trading activities, they are also using binary trading as a hedging instrument.  What I mean by this is instead of closing out a trade that is going against them, they may first consider placing an appropriately sized binary trade in the opposite direction of the original trade to offset potential losses. This is a super effective way to mitigate downside portfolio risk. In many instances not only does an effective binary trading hedge limit risk but it also increases overall profitability. Now that’s what I call a win-win scenario!

Binary options strategies come in all shapes and sizes but when you really take a closer look there are really just two overriding themes, speculation and hedging. In the following paragraphs we explore the most common speculation and hedging strategies used in binary options trading today.

Speculative Binary Options Strategies

Speculative binary options strategies typically consists of a trader implementing a some sort of technical analysis to pick high probability binary options entry points. Candlestick charts are used pretty extensively in these types of binary options strategies as they are pretty adept at identifying short-term trends, something all binary options traders strive for. When implementing speculative binary options strategies, traders tend to wait until the last few minutes prior to the lock out period to place a trade. Waiting until the last minute to place the binary trade minimizes the amount of time the trader needs to be correct in his/her short term directional choice. Stocks tend to move around a bit and it is very common for trends to reverse after a few minutes, so the shorter amount of time the trade is exposed the better for speculative binary options strategies traders.

Hedging Binary Options Strategies

On the extreme opposite end of speculation lie the hedging binary options strategies. While the speculative traders take on massive all or nothing risk in their trading activities, hedgers prefer to place a trade early in the expiration cycle, monitor the performance, and then decide on an appropriate action plan to ensure maximum gain and minimum loss. Hedgers usually implement one of three strategies during the expiration cycle. 1) Purchase a binary call (put) option early in the hour and, if the stock moves in the appropriate direction, purchase the opposite binary put (call) to lock in a profit zone and minimize the amount of downside risk. 2) Purchase a binary call (put) option early in the hour and, if the stock moves in the appropriate direction, purchase another binary call (put) to essentially double the trade amount. 3) Purchase a binary call (put) option, and if the stock moves against them, quickly purchase the opposite binary put (call). This strategy essentially locks in a loss unless the hedger is able to place another trade to create a profit zone.

These binary options strategies are used extensively throughout the day by experienced binary options traders. While the speculative binary options strategies incur more risk, the reward is significantly high enough that most traders of binary options end up using it the most. If you are more conservative then you should definitely consider going the hedging route.

Binary options are quickly becoming a favorite of traders as both a hedging and speculation tool. While they seem relatively new, binary options have been traded for well over a decade, though they were originally traded over the counter usually between two institutional investors, mostly hedge funds and investment banking prop desks. Retail traders had to wait until 2008 before they were granted the right to trade binary options, and since then the popularity of this asset class has gone through the roof. But what exactly are binary options and how do they work? Let’s take a look:

Binary options can best be summed up as a trade that offers only two distinct outcomes, either your trade finishes in the money (winner) or out of the money (loser). This is in stark contrast to traditional vanilla options where concepts such as time decay (theta), volatility, strike price, time to expiration and the like all go into the pricing. Binary options offer a simple risk-reward proposition, which is known and clearly stated prior to entering the trade. A lot of the trading sites that offer binary options place a return percentage of anywhere between 60% to 90% for winning trades and a 0% to 15% return of capital for losing trades.

Binary options are usually offered on a variety of underlying assets across most trading platforms. Stocks (otherwise known as equities) are offered across most platforms, but usually the number of stocks is limited. Stock binary options are typically only offered on the largest, most liquid names such as Apple, Google, Microsoft, Intel, JP Morgan, and the like. Technology stocks make up the majority of stock based binary options. Foreign exchange (forex) binary options are also well represented across platforms with most major currency pairs making up the bulk of trading. Popular commodities such as Gold, Silver, Oil, Natural Gas, and Copper and Major Indexes across the globe can also be found on most binary options trading platforms.

One common misconception about binary options revolves around expirations. Most people believe all binary options have a one-hour expiration time; this simply is not true. Over the past few years we’ve seen expirations range anywhere between 15 minutes on the low end all the way up to one month. While I don’t know many people who trade one-month binary options I’m sure some have found a use for them. One of the major advantages of binary options is the short time frame and simplified payout structure so you are likely to see traders gravitate more to the one-hour binary options.

Unlike traditional day trading where you need decent market volatility to generate nice gains, binary options do not require a whole lot of movement to generate out-sized gains. So when is the best time to trade binary options…all the time! Ok, so maybe that’s a little over the top but there are certain times during the day that are ideal to trade binary options, so let’s go over 2 specific time frames.

Trading On The Market Open

This is a little tricky. Traders either strongly love or strongly hate trading on market open. Stocks move around with so much volatility that sometimes it feels like a crap shoot in picking an appropriate direction. Binary options brokers know the feeling as well so many don’t allow you to trade binary options until a certain time has passed. These market open time frames range anywhere between 5 minutes all the way up to a half an hour.  For those of you who like to see huge moves in binary option prices you may want to trade binary options as close to the open as possible. One advantage of trading close to the open are these huge moves which can place your trade firmly in the money within minutes of placing the trade. Conversely, the binary trade can move against you immediately, placing your trade firmly out of the money. However, always remember when you trade binary options you always have the ability (at least until the lock out period commences) of hedging your trade. So if the trade moves against you right away you can start to implement a hedging strategy that can, in some instances, completely negate the effects of the unwanted move. Just something to think about as you start to trade binary options.

Trading On The Market Close

While binary platforms may differ on what time they’ll let you start to trade binary options on a daily basis, they all let you trade options into the close of the market. During the last hour of trading you will at times see different stock movement patterns emerge that allow smart binary options traders the ability to place high reward / low risk trades on prior to expiration. We’ve known traders that focus solely on these market close opportunities and have made a killing doing it. This does take a lot of patience though as some wait all day and end up not placing any trades, which can be a frustrating thing. While these setups do not occur everyday, it is best to learn them as you begin to trade binary options.