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Why Binary Forex Options are better than Spot Forex

  • #381
  • Jul 14, 2009 5:39pm Jul 14, 2009 5:39pm
Quoting siafx
I bought the Eur/Usd TBA 1.3900.

I closed it for a big loss, but I did not need to because it paid by 1 pip.

Usually, if the price hits my strike, I close it.

When I bought the thing, Eur/Usd was steadily moving up and was about 90 pips away with about 4 hours to go, trying for about 12 pips.

It went down about 100 pips, I closed it and took the opposite side for about 20 pip gain but a lot less pip value.

What did I learn? Do not Martingale. It will eventually wipe you out.
Maybe if you had less money on the first trades, you would have had enough to make the pip value of the second trade the same..
  • #382
  • Jul 16, 2009 9:29pm Jul 16, 2009 9:29pm
I had some success this week simply buying up and down options on e/u and g/u. I'm using the 5-8EMA Crossover Arrow indicator you can easily find on FF with a search. I'm using it on daily charts and placing trades in the direction of a new arrow just before the Asian open usually around 7 or 8 PM EST. using IG

The way I understand it if the underlying ends higher (or lower if you buy a down contract) by the end of NY trading the next day then then profit=true and it is cash settled at this time. strategy is to keep taking these up down trades in the direction of the arrow until it looks over extended and/or the end of the week is near, like today which both seem to be the case so no trades tonight. This is for sure a smarter way to range trade than spot and a lot easier to understand than exchange traded options. I'm very skeptical of trading currencies through an exchange that is not open 24 hours.

I'm only spending about 5 mins a day since I'm very busy with my day job this works out well so far.
  • #383
  • Jul 16, 2009 11:24pm Jul 16, 2009 11:24pm
Quoting Blud4oilPrgm
I had some success this week simply buying up and down options on e/u and g/u. I'm using the 5-8EMA Crossover Arrow indicator you can easily find on FF with a search. I'm using it on daily charts and placing trades in the direction of...
So if the 5 ema is lower than the 8 you are trading with short in mind & vice versa or just when they cross?
  • #384
  • Jul 17, 2009 2:45pm Jul 17, 2009 2:45pm
Quoting Blud4oilPrgm
I had some success this week simply buying up and down options on e/u and g/u. I'm using the 5-8EMA Crossover Arrow indicator you can easily find on FF with a search. I'm using it on daily charts and placing trades in the direction of a new arrow just before the Asian open usually around 7 or 8 PM EST. using IG

The way I understand it if the underlying ends higher (or lower if you buy a down contract) by the end of NY trading the next day then then profit=true and it is cash settled at this time. strategy is to keep taking these up down trades...
So, are you trading the Binaries or the spreads? I trade with Nadex and on the Binaries, at 3 P.M. ET, the contract expires at either $100 or $0, depending on whether or not you were correct with your trade.
  • #385
  • Jul 17, 2009 2:49pm Jul 17, 2009 2:49pm
Quoting kareem
what r the best charts to use for interday
If I'm somewhere where I don't have FXCM installed, I use dailyfx for my charts.
  • #386
  • Jul 22, 2009 1:40pm Jul 22, 2009 1:40pm
Hi Yoda and all other traders in this thread!

This week I decided to look into trading Binary Options. I opened demo accounts with both Nadex and IG Markets. So far, I have been more comfortable with IG Markets, mainly because I can still trade Spot Forex in addition to the binaries. This has been especially nice because I have done very poorly with the binaries and was able to make up those losses by trading spot forex, lol. One of the frustrating parts so far is that a number of my trades closed at losses due to my option closing short of my targeted price only to see the price hit later. Oh well. I know it will take some time to learn a strategy for binaries. I do wish IG Markets had the weekly binary options. I believe I would have done a lot better with the weekly options.

Today I had my first two positive trades. Last evening (MDT) I bought the EUR/USD to be above 1.4080 at 88.1 points (will profit 11.9 points) and EUR/USD to be above 1.4120 at 80.1 points (will profit 19.9 points). Yes these do carry more of a reverse risk-to-reward, but I am very bullish on the Euro so I felt the risk was not that great that the contracts would close below 1.4120 or 1.4080.

I like the concept behind trading Binary Options. I especially like the fact that you know exactly what your risk is on each binary you trade. Since I am a scalper, it has been a little more challenging for me because I have to pay much more attention to longer term charts. However, I love a good challenge. It would be great to hear from anyone in this thread regarding strategies you use to trade Binary Options. Best of trading to all of you!

Coach
  • #387
  • Jul 22, 2009 2:28pm Jul 22, 2009 2:28pm
Quoting Coach1959
Hi Yoda and all other traders in this thread!

This week I decided to look into trading Binary Options. I opened demo accounts with both Nadex and IG Markets. So far, I have been more comfortable with IG Markets, mainly because I can still trade Spot Forex in addition to the binaries. This has been especially nice because I have done very poorly with the binaries and was able to make up those losses by trading spot forex, lol. One of the frustrating parts so far is that a number of my trades closed at losses due to my option closing short of my...
Basically the strategy I use is to use the ATR to find out what the daily range is of a currency (EUR/USD has been around 130 pips lately). As soon as the trading is opened up on Nadex for the Daily Binaries, I jump into one that is further away than the ATR and against the trend. For example, if the trend is up (like it has been this week) and the ATR is around 130, I'll take a trade that is at least 150 to 160 pips lower than the current price. That way, in order for me to lose, not only would it have to go 160 pips, but it would have to go that distance in the wrong direction. The risk:reward isn't very good at all, but the odds are incredible. I lost about 20% of my account the first day (not using this strategy) and since then, I have come up and passed the break-even point and now am at a 10% gain. I've been trading a total of about 10 days. Had I not made that loss at the beginning, I would be up at least 30% in 10 days which I can definitely live with. Hope that was informative.
  • #388
  • Jul 22, 2009 4:11pm Jul 22, 2009 4:11pm
I first got into trading by reading a book on binary spreadbetting, the system was based on fibonnacci ratios, sometimes it worked others it did'nt. on the FTSE100 then used it on the GBPUSD. Didn't pursue it for long enough.

Usually people hear about binaries after trading spot forex.
All Assets NAS100 GLD BTC AUS JPY GBP All Time Return: 20.1%
  • #389
  • Jul 22, 2009 5:20pm Jul 22, 2009 5:20pm
I saw these contracts at 97 & lets say you buy 10 contracts then your payout is $30 minus fees. After fees you only make $10. Those fees eat you up because your fees are more than your profit! Some prices look good but when i see that it's at 97 then i say forget it.
  • #390
  • Jul 22, 2009 5:52pm Jul 22, 2009 5:52pm
Took a contract for EUR/USD > 1.4040. About 165 pips south of where it's standing, and the ATR is around 120. With the reports coming out tomorrow, I see the dollar taking another hit and the EU to move up. We'll see though. If it goes south, at least the odds are greatly on my side that it won't go south 165 pips by 3 p.m. ET tomorrow. Got into the contract at 95. I can still afford to do that because I'm in the 4 weeks with no fees period.
  • #391
  • Jul 22, 2009 7:10pm Jul 22, 2009 7:10pm
Quoting lucashammer
Basically the strategy I use is to use the ATR to find out what the daily range is of a currency (EUR/USD has been around 130 pips lately)....
Yes this was informative Lucashammer. I appreciate you taking the time to respond and for a look into the strategy you use for binaries. Using ATR makes perfect sense to me. ATR is what I have used for a long time in trading spot forex, trading reversals at extremes of a daily range. I agree, the risk/reward is not as good taking the high probability contracts. However, with the ability to be able to close at a smaller loss, if needed, the potential loss can be managed rather than let it go all the way to zero.

Congrats on your gains over the past 10 days . Yeah, 30% would be really awesome for 10 days trading. But even the 1% per day average you have had over the past 10 days would be real nice on a consistent basis. My first day I lost almost 3%. The second day I made up about 2% of that loss. Then today I made another 2% so I am now 1% to the plus side. Now remember, that is a combination of trading spot forex and binary options with IG markets.

Coach
  • #392
  • Jul 22, 2009 7:15pm Jul 22, 2009 7:15pm
Quoting Phil_GMT
I first got into trading by reading a book on binary spreadbetting, the system was based on fibonnacci ratios, sometimes it worked others it did'nt. on the FTSE100 then used it on the GBPUSD. Didn't pursue it for long enough.

Usually people hear about binaries after trading spot forex.
Interesting Phil. So what do you trade now? Spot forex? Futures? Other options?
  • #393
  • Jul 22, 2009 7:26pm Jul 22, 2009 7:26pm
Quoting ferndog
I saw these contracts at 97 & lets say you buy 10 contracts then your payout is $30 minus fees. After fees you only make $10. Those fees eat you up because your fees are more than your profit! Some prices look good but when i see that it's at 97 then i say forget it.
Yes the fees definitely need to be factored into the strategy. That is one thing I like about IG Markets. They charge no commission. It does appear they may make up in the difference between the bid and offer price on the binary. I have not totally checked that out yet.
  • #394
  • Jul 22, 2009 10:38pm Jul 22, 2009 10:38pm
Yea IG makes their money with the spreads. I guess the only way to find out what the fees would be is to trade with them. I might start doing that.
  • #395
  • Jul 23, 2009 1:35pm Jul 23, 2009 1:35pm
Quoting Coach1959
Yes the fees definitely need to be factored into the strategy. That is one thing I like about IG Markets. They charge no commission. It does appear they may make up in the difference between the bid and offer price on the binary. I have not totally checked that out yet.
That's pretty sneaky... ...they are obviously making money off the bid-offer spread (which can be MUCH MORE than any commission). Also, if the broker is the only market-maker, they can easily widen the spread or step away from the market during "dislocations".

I wonder if they are pricing these options fairly. If you are not careful, they can easily overcharge you for these options.

Can someone tell me what a typical bid-offer spread is for these binaries?

At least feed your parameters through a simple binary option calculator so see what implied volatility they are charging you... ...like this one (be sure to change your Model Input to Currency).

http://www.sitmo.com/live/OptionBinaryCash.html

(BTW, there are definitely Greeks on binary options - there are Greeks on everything - it's just that derivatives Greeks are more interesting than Greeks on delta-one products...)
  • #396
  • Jul 23, 2009 2:19pm Jul 23, 2009 2:19pm
Up another 5% on my account today. Feeling pretty good about it so far. That puts me 15% up overall (after a 20% drawdown) in less than two weeks. Going for another 5% tonight. Nadex doesn't have fees for the first 4 weeks, but then they kick in. I wonder if IG Markets is pulling something like that...
  • #397
  • Jul 23, 2009 2:47pm Jul 23, 2009 2:47pm
Quoting lucashammer
Up another 5% on my account today. Feeling pretty good about it so far. That puts me 15% up overall (after a 20% drawdown) in less than two weeks. Going for another 5% tonight. Nadex doesn't have fees for the first 4 weeks, but then they kick in. I wonder if IG Markets is pulling something like that...
Very nice Lucashammer. You are doing great! My last 24 hours has been interesting. As I said in a previous post, you can trade spot forex at IG Markets as well as binary options. I traded the equivalent of a standard lot on both binaries and spot. The verdict (try not to laugh, lol): Overall lost 32 points trading binaries and made just over 180 pips trading spot. Ended up with a nice profit, but it looks like I really suck at trading binaries. I can already hear the chorus of traders agreeing with me .

I did have a conversation with a rep at IG Markets. She told me there are no commissions. Last night I compared the bid/offer prices between IG Markets and Nadex. Actually the spreads are fairly comparable. However, it did not appear they had the exact binary option price ladder.

Keep up the good work Lucashammer.

Coach
  • #398
  • Jul 24, 2009 12:22am Jul 24, 2009 12:22am
I remain bullish on the EUR/USD. After the market reopened, I bought an up/down binary on EUR/USD up (> 1.4204) at 30 points. The risk is 30 to make 70. There is some news during the London session, so we'll see.

As I analyze the binary trades I have made so far there are two things I have noticed about my trading:
#1 - I have not managed my losing trades properly, thus greatly affecting my overall profits. Today, for instance, I should have been up significantly with my binary trades but I allowed the losers to go too far.
#2 - The past couple of days I have noticed there is some nice trading opportunities an hour or two before close, especially on the up/down binaries. Yesterday AUD/USD was very close to it's median price so it had a lot of volatility. I actually did several very short term trades for 10 - 15 points profit. The strategy here is to look for at least one of the currencies that is trading close to that median price. The other potential strategy is to look for one that has a high probability to close at 100, whether in the ladder or an up/down binary, and enter it at 90 - 95 points. Sure you will only make 5 - 10 points profit, but so far it has worked very well.

Best of trading to all!

Coach
  • #399
  • Jul 24, 2009 1:21am Jul 24, 2009 1:21am
Quoting Coach1959
...Overall lost 32 points trading binaries and made just over 180 pips trading spot. Ended up with a nice profit, but it looks like I really suck at trading binaries....
Not really - it depends on how you view your trading. If you use binaries + spot to build a potential pnl curve, it would be natural that some of the time, the binary would be the loser and some of the time, the spot. In other words, your binaries can act as a "hedge".

What is nice about binaries is, it allows you to build non-linear strategies and pnl curves (look at a plain pnl vs spot curve and it looks like a straight line - with derivatives you can build levels where you've limited your losses or your gains by receiving a premium).

However, you could just view them as separate bets...
  • #400
  • Jul 24, 2009 1:35am Jul 24, 2009 1:35am
Quoting kfmfe04
Not really - it depends on how you view your trading....
Nice post kfmfe! This is what I've been thinking about: use the binaries as a "hedge." There will be days I will succeed with binaries where I might not do as well with spot forex trades. Or better yet, days when I do well with both . Plus one great advantage with binaries is you know right up front what your potential loss and/or gain will be.

Regards,

Coach
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