Hello comrade traders! For Binary Options, there are a huge number of strategies based on indicators , patterns of price movement and much more. But every trading system has losing trades. Is there a strategy that always makes a profit? The one that can rightfully be called a win-win?
The advent of binary options opens up new opportunities for making a profit. They include both direct binary options trading itself and position hedging. Binary options hedging is definitely worthwhile insuring your positions against losses. The uniqueness of this is that with a competent approach, it is possible to almost completely eliminate losses, having received a kind of grail.
Over the past two decades, retail trading has evolved a lot, turning from a stupid clumsy animal into a simple and friendly creature. Binary options did to the market what forex did in its time – completely changed the established paradigm of the market. For common speculative operations, nothing beats the ease of use with binary options. Considering that you know all the parameters of a deal even before opening it, it is easy to predict the financial result, regardless of whether you win or lose. And this, in turn, allows you to control trading risks with a previously unavailable accuracy.
In this simplicity, at the same time, lies the main danger of a newfangled instrument – it is very easy to lose a deposit on BO. This is especially true for novice traders . Given that no special knowledge is required to trade here, beginners often do not take market risks seriously. The market does not spare the weak players, taking full advantage of the inexperience of these. Only because of this feature, many have a negative attitude towards options, not seeing further development in this instrument.
In fact, not everyone knows that a variety of trading strategies can be used on options , including hedging . The essence of hedging is that you get a much better profit-to-loss ratio. Hedging cannot be fully called an arbitrage strategy, as there is still some risk. Most often, positions are hedged to reduce overall losses. That is, you kind of buy insurance for your existing position, which can subsequently save the position from large losses, or can only reduce profits.
Positions can be hedged both within the same broker , and with different ones. All you need to do is find an arbitrage situation in which the outcome of the common position will have a reduced risk on either outcome. Unlike forex, where two opposite trades will simply cancel each other out, on BO the difference in payments between the two directions can be significant.
In fact, there are a lot of risk hedging strategies, even on binary options. The fact that binary options only have 2 possible outcomes greatly simplifies the calculation of the hedging position. Time of entry remains the key. The outcome of your trade will depend on when and under what conditions you enter the market.
In search of the binary grail
Some brokers offer options with a partial return on losing positions. That is, after the expiration of the contract, you get a part of its full value back, even if the contract was lost. Naturally, in this case, you receive a reduced payout for profitable positions. The first thing that comes to mind is to use the described difference in payments to your advantage.
There are brokers on the market offering earnings up to 100% of the invested amount. Also, for some types of options, in case of a loss, it is assumed that a part of the contract value will be returned, as a rule, from 5% to 50%. In theory, if we buy two oppositely directed contracts at the same time, we get an arbitrage situation in which we remain in profit anyway.
Let’s consider the situation using one hypothetical example. Let’s say the option payment is 100% of the deposit. The first broker offers conventional options with a fixed payment, the second – options with return on losing trades. That is, for the first option, we either get a 100% profit in case of a successful transaction, or we lose 100%. According to the second, we either get 85% of the profit, or we lose 85% of the deposit in case of a loss (i.e. we get 15% back). So what we have:
As you can see, with such parameters, the strategy does not give an obvious advantage, since the sum of the potential loss and profit is equal to zero. That is, to obtain arbitration, we need to receive at least 5% return on loss at 100% profit.
The search for the grail is useful for the reason – “Looking for one thing – you find another.” They searched for the “Philosopher’s Stone” and discovered porcelain. A trader, having set himself the goal of finding 100% payout for options, will discover interesting things: such payments are possible on volatile options with a relatively long-term expiration period . Judging by the difference in interest payments on contracts, there are many intermediaries in the brokerage market, so the search task is complicated by the requirement for the relative reliability of the companies found hypothetically suitable for hedging.
Then the trader will receive routine scoring among Forex brokers offering binary options trading services. It is easy to find paying 100% refunds, but at the same time it is difficult to reimburse the loss.
Below, an example will roughly show one of the algorithms for creating a hedged position in binary options of different brokerage companies. For the sake of simplicity, let’s consider a simple hedge based on classic “Above / Below” binary options. As mentioned at the beginning of the article, multidirectional positions will be opened for one asset at different dealing centers.
Lately, to the luck of the trader’s brotherhood, options of the “0-100” type have appeared on the market. So they are called due to payments of 100% (all or nothing). Moreover, the feature of such options is the free choice of the expiration time. The difficulty in finding the parties to the hedge lies precisely in the matching of payments, compensation and expiration time.
Having picked up such an option of the “0-100” type on one side of the hedge, on the one hand, we provide ourselves with a zero result of the deal in case of an unsuccessful scenario, but on the other hand, with the correct forecast of the direction, interest on compensation will remain in our pocket.
We choose liquid currency pairs as contracts , the expiration period depends on the “refundable option”, and it is quite high – 4 hours. Option 0-100 is set up for this period. At the same time, we open oppositely directed positions. After waiting for the expiration date to expire, we get either a zero result or a 5% profit.
In the future, having worked out the tactics, you will be able to apply more complex constructions and types of options, increasing the profit to several tens of percent per trade.
How to lose in a win-win combination?
- The profit of a hedging structure is not that great, it is worth thinking about forecasts of market direction in order to get away from zero results if possible.
- On one account the funds will melt, on the other – they will be added. For deposits and withdrawals of the deposit, the broker can take his own interest. Think over the starting amounts and questions of “transfer” of the deposit from the account of one broker to the account of another.
- It is also possible that quotations from different DCs do not match. Consider these points when entering a position at the same time.
- Study in detail the calendar of economic events and opening times of world exchanges. Do not open a position during the news release period , you may not have time to “open simultaneously”, and the price will fly away.
Also, not all binary options brokers are ready to offer such a high percentage of payments. However, there are companies on the market that provide high payouts (up to 100%) on some types of options. These include Brokers BINOMO, IQOPTION, OLYMPTRADE pay up to 50% on losing positions.
However, this is not the only practically win-win strategy for hedging binary positions. We can also use the time factor to our advantage. Let’s say you bought a Call option with a 90% payout, which at some point entered the profitable zone. Here two options appear: leave everything as it is, in which case you will either get a profit of 90% or a loss of 100%; the second option is to open an additional Put option with the same expiration time. In this case, if the outcome is unsuccessful, you will receive a maximum loss of 10%. In the same case, if a trade closes in the space between two positions, you will receive double profit – 180%. That is, the ratio of loss to profit will be 1:18.
Obviously, this method of hedging gives a great advantage over the market, greatly reducing the risk on the position and increasing the profit. When repeating such a scheme, with each opening, one of the next positions will necessarily go into profit, covering the accumulated loss. We can say a break-even system.
This strategy works best in a channel. You need to wait for the price to bounce off the channel border and buy the option in the direction of the rebound. Then, buy another option on the back, indicating the same expiration time. Channel trading greatly increases the likelihood of closing a trade between the two strike lines and increases the number of profitable trades.
When hedging binary positions, it is important to pay attention to the broker’s trading conditions and calculate the risks in advance . Also, it is not always possible to hedge a position within one broker. In this case, you need to open contracts with two different companies. The execution time of contracts must always be synchronized, otherwise the entire effect of using the strategy is lost. Position sizes, on the other hand, can be changed at your discretion. For example, if the forecast indicates a predominant upward movement, the position can be hedged with a smaller Put contract, leaving the possibility of getting more profit if the forecast is successful.
And do not forget to follow the stocks with brokers – sometimes, albeit temporarily, you can build very profitable schemes by opening positions in different companies.