swing trading

Binary Options

| Swing Alpha on 7 Mar 2017 12:00 AM

People heading to Las Vegas in the U.S. have three objectives for visiting this colorful city. For couples, their purpose is common, to the tie the knot. Tourists on the one hand troop to the place for its entertainment value and to see show-stoppers like Manilow and Dion perform on stage. On the other hand, the majority are in for the thrill of making money, trying their luck on table games or slot machines.

The third purpose mentioned, which is gambling, may be likened to binary options in the investment world. There are striking similarities in that, players in both plays a game of chance. Among the activities in the financials market, binary options are distinct types of trading. The trading is basically based on probabilities and beating the odds.

What do you know about Binary Options?

Binary options are trading instruments that are gaining popularity as well as notoriety. Traders bet on an asset’s price fluctuation, either rising or falling values. There is no buy or sell activity happening, just contrasting guesses on only “two or binary” options: high and low.

  • The high-low option
This is the most common binary option which is also referred to as a fixed-return option. A trader wagers on the prices of stocks, indices, foreign exchange and commodities on a specified expiry date or time.

A trader will guess the ‘strike’ price on the expiry date/time stipulated on the trade contract. If the trader is spot on, then a fixed return is paid. However, a mistake means losing the investment altogether.

In essence, you are betting whether the price of the selected asset will be higher or lower than its current price on the expiry date/time. The trader would make money on either a ‘call’ or a ‘put’ order, depending on the market movement. You make money on a call if the price is above the strike price at the expiry date/time. Conversely, you make money on a put order if the price is below the strike price at its expiration.

  • Binary Options outside the border
There are several types of practiced binary options outside the U.S. border by international brokers.

One-touch binary option
The "one touch" binary option makes money when a trader touches or hits the price at the specified target level only once before the expiry date. Traders also work on guessing a target price above and below the current price before the expiry date.
Range binary option

Traders are allowed to select a specified price range of a particular asset in the "range" binary option. The price should be within the price range selected on the maturity date to earn a payout. Otherwise, if the price at the time of expiry is outside the specified range, losing the investment is a foregone conclusion.

Participating investors in binary options are forewarned of the risks involved yet some do accept the challenge because other binary options promise 50% to as much as 500% fixed-returns.

In some cases, international brokers give room for trade exits before a binary option expires. Returns are expected to be low, if not very minimal if a trader decides to exit but there is no risk of losing an investment.

What are the windfalls and pitfalls of Binary Options?

Given the parallelism with Las Vegas gambling, there are windfalls and pitfalls to winning and losing.

1.   Choosing to invest in Binary Options
The promise of high returns in binary options is very tempting for investors who are in search of hefty windfalls. Just like playing a table game in Vegas, some people think they can simply sit down and win the dollars on the momentum of a winning streak. Such mindset is a pitfall if applied to binary options.
There is a required learning curve in binary options. One has to study the rules of the game first and invest in small bits initially. Once you have understood the binaries and its functionality then you can gradually increase the stakes and earn those bucks.

2.   Minimizing your losses
In Vegas, the tendency of losing players is to keep on playing until the tide turns and slowly recover their money. Before they even know it, they are in a sink hole. That attitude is a pitfall too in binary options.
The first act of the day is to understand the major pitfall. In this game of high and low, the risk is always greater than the reward. This means a trader must be adept at reading the market direction which should translate to a high percentage of covering or minimizing losses for most of the time.
Price spikes and dips are inevitable but there are only two certain outcomes: win a fixed amount or lose a fixed amount. However, based on the current trend in binary options, losing trades are more costly than winning trades. There are rare incidences in the other types of binaries outside of the high-low option where the reward is theoretically greater than the risk.

3.   Game of chance
In Vegas, winning is the only thing unless luck turns its back on you. The same thing is the top-of-mind objective of players in the binary options and in all other investment outlets.
That does not say there is no upside to these trading instruments in binaries. It may be a game of chance but the investors know beforehand that it is a play at your own risk approach. The market direction is an integral part of the game but the more important aspect is the trader’s ability to take the winning side whether on the high or the low.
In the case of the foreign binary options, the upsides are: a) risk and reward are clearly defined; b) several choices of multiple assets in the global market; c) wider strike price targets and expiry dates; d) no commissions paid out; and e) investment amounts can be adapted to an investor’s budget.

4.   Investor Vigilance
Binary options trading are legitimate but the foreign binary options remain unregulated and therefore the brokers that are operating illegally make a killing on unsuspecting investors. There is no question that the binaries are attractive investment alternatives although investors should be well-advised to exercise vigilance unless they want to see their money disappear into thin air.
Investors are easily lured by the internet-based trading firms offering binary options and promised returns that dwarf the earnings offered by the traditional financial instruments. It is better to monitor the trends in binary options and the dangers that go with it.

The End Point

If you factor in all the likely pitfalls ahead of the probable windfalls, then the next step is to familiarize yourself on the technical analysis of the market in the same way you would in the stock market or forex trading. In 2017, watch out for stricter industry regulations and how the brokerage firms can adjust to them before you decide to engage in binary options. You just have to play your cards right.


3 Mar 2017 4:38 PM | Anonymous

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