Why Binary Forex Options are better than Spot Forex

Also, I started a thread in the Trading Journals forum for everyone to use to post their results so we can leave this one to answering questions about the contracts. The new thread is here:

http://www.forexfactory.com/showthread.php?t=186781

Does anyone know if it is legal to invest other peoples money without creating a hedge fund. My sister have asked me to invest some of her money but I am not sure if this is legal.

Don't you wanna be the CEO of a hedge fund? Just kidding. I think it depends how much you are investing among other things.

http://www.investopedia.com/articles...forfriends.asp

I would recommend against it. It mentions in that article that you have to be registered with the SEC and possibly other regulations. (assuming you're in the U.S.) It also outlines all of the other nasty things that could happen investing for other people. There was a link on that page (don't remember where) where you can find more info about investing for others. Hope that helps.

Maybe I should just tell her how to trade binaries. It is quite easy

thx bro for the explanation. it was acctually what i had in mind but i wasnt 100% sure.

Hedgestreet has been set up by IGIndex for US operation.

Signing up.

Lenoxer

Thought i might raise this thread back again and see if anyone has come up with some high probability strategies for using binaries to add some $.

I was thinking that with binaries, u can take trades that may not have the standard high risk-reward ratio, but that have a large win rate.

The obvious type of scenario is taking a bet that is already near the 100 at close and therefore risking say 80, to win 20 - we as traders would naturally think this ludicrous with "normal" trading, but possibly a safe, high probably bet with binaries ?

Any thoughts ?

Im just trying to figure this out. Im good at forex make money but I dont risk alot so my reward is small also.

Yea i have been trading near close and its working out quite well for me right now. However its REALLY stressful. Instead of demoing for a long while i decided to toss a little bit of money in an igmarket account and give it a shot. Im up about 20% on the week, was up 50% but a spike in GU just yesterday freaked me out and took a loss that if i had been more patient with would have been in the money for me anyway.

Im still working out a proper straight as i continue to learn BO

I have been trading for some time now but there is something that I am sure about. If I buy at 96 and close at 80 will I then lose the difference between 96 and or or between 100 and 80.

Its the value you close it at...

If you BUY at 96 and it doesn't go your way and you decide to SELL at 80 then you lose 16 points. If you let it go to expiry and you are wrong it will close at 0 and lose 96 points.

bump

Here, I'll bump it.

I'm familiar with binaries and how they work. Under certain market conditions,
these can be very lucrative. Deep in-the-money strikes under low volitility,
usually trading in the 90's already well before the close, really often are like picking up $20 bills of the floor.

If you don't mind tying up $4900 to return $5000 in a few minutes (5.0 contracts let's say)
at 1 pip = $10 per 1.0 contracts, minimum @ IG (UK's most populat dealer) is 0.2 contracts
it's not much different than posting a margin for some forex lots, or a futures contract
and scalping a few pips or ticks.

Now you COULD lose the entire 90 something points, all for the lure of making those few remaining points to get to 100,
but when something has already popped 80 and is staying there and is slowing creeping toward 100,
with little time left to expire, if nothing is on the news horizon and it's well in-the-money,
the risk of busting out is lowered to a managable, acceptable level, but the risk is still there.

Real risk comes when price of the underlying is hovering close to the strike
and
it's at that point you can expect the maximum pain theory to play out.

So if you play binaries close to the strikes and paying between 50 and 60 to get to 100
I think the risks there are elevated.

Either buying deep in-the-money close to expiration, or punting early in the day with
a directional call for a premium price under 25 presents some of the best opportunities in binaries.

By the time a trend has revealed itself, the at-the-money option will usually reflect this.
I think this can offer the greater risk of loss. Just like vanillas, the premium is writen to reflect perceived exposure risk at that moment.
And even though the downside is limited to somewhere between 0 and 100,
compared to unlimited in the spot market, I've seen 70 or better move to under 30 well before settling at 100.
Risking 40 or more (as much as the full 70) to make no more than 30 max leaves a little something to be desired.

Like everything else, it requires a bit a skill and for those who'd completely poo-poo the notion of
trading binaries because it's a more exotic segment of the asset class known as derivitives,
the culprit that gave us the crash of 2008, I'd remind you that some people bet seriously
on boxing matches and football games and THEY think that what WE do (trading) is absurd.

So to each his own.

There, that's my bump.....

Yesterday, Friday November 13th was a good example of how Binaries can
really keep you on your toes.

Look at the folowing 4 charts:

As you'll remember, price on the EUR/USD started the asian session around 14850
and by London open had come with range of 14900, near the pivot.

Then the drop began going into New York. Although 14840 was reached, as evidenced by the payout in chart #2,
14820 was not hit (low of 14824) and the 83 binary price eventually evaporated to zero - chart #1

Then on the upswing, with Londin going home and New York squaring their books for the week,
as prices closed in on 14900 then broke thru to hit 14938, notice how both the 14930 and 14950 strikes
went up from almost near zero to what was a hit for 4930 (chart #4)
but was a complete failure for the 4950 strike (chart #3) which went from the lows near zero
to a high of 65 then back to expire worthless.

Even with IG's wide spread on these, the ROI was many times initial capital outlay
and all within a controlled risk environment (zero to 100).

So, again, these are an interesting animal. For those interested, it will take some time
to understand why it can work out, or even if it is appropriate for your style of trading.

If it isn't for you, no problem then. Just know that the Options market is at the heart of Forex.
It's very difficult to mask or hide a major major sized position in spot Forex. Every body sees everything.
Also, there are position limits in the futures markets. Difficult but not impossible to bend those rules.
With options, positions of incredible size can be carried overnight without some of the risks associated with spot.
Those who write can hedge and use a variety of manuvers to offset risk.

These (binary) options are only one flavor of those available to manage and exploit risk.
Derivitives in general are so esoteric, even to experienced traders, that they are widely misunderstood
and often shunned by many as "too risky to trade", even by scalpers that jump on every other pip.

Like everything else, it is what it is, for what it's worth and some make it work,
while others do what they know best and works for them instead.

cheers.

Thanks toshi!

That helps alot. I am going to papertrade these for a while. I likes me a sure thing but even I am not crazy enough to believe that many exist. But the "gimme" easy last $2-3 on the tail ends of these will be something to watch. On paper, the R:R is atrocious. But just how risky is the risk? I will ask Bill Clinton to tell me what the meaning of is is....

If nothing else, it will be instructive to think about how these are written & what the implications are for the spot market. I bet those IGMarkets options writers are smarter than me. Alot.

Hey Tjpld!

I was hoping the OP and some of the earlier contributors would come back and tell how their experience with trading binaries had gone...?

Anyone tried these Bounceback(Bungee) Options? They are basically like
trading in one direction with a fixed Stop (Floor in this case). So your risk
is predefined by your buyprice and the distance to its floor level.
When it goes under your floor you lose that amount of money if it expires under your floor level no matter how far. If it goes back above it you're back in the market and will gain with everypip.

What I don't understand is that all of them have their own prices so it's a bit of effort to see what Bounceback has the smallest risk. I tried to buy both a BUY-Bounceback and a SELL-Bounceback to create a Strangle like you can do with regular options where you benefit no matter where the market goes if the move is big enough to cover the premium but it didn't work.

I never got my act in gear on these and the demo period was too short to really get a feel for it. I might see if I can do the low trade size option where I think you get 6 weeks trading pennies.

One thing that did work for me was taking my usual S/R levels and doing no-touch of levels well outside the daily ATR. I coupled this with 'to close below/above' those same levels. From memory I don't recall a losing trade on those and I saw a steady upward growth in the equity.

It's a shame they don't give longer or continuous demos as there are several strategies I wanted to try out.

I'm still tempted by BOs but may end up just spread-betting the FX market over here in the UK as they are both attractive from a tax point of view.