Binary Options - How not to get stopped out

I'll prove it to you if you up your bet to $2,000....or promise to leave Forex Factory for good. What do you say? And of course, the bet applies to me as well too. I wont give you a petty 3 months worth of statements either (as I have now) I'll give you 8 months worth. What do you say?

Correct, you do have to have a good understanding of Spot Forex trading, because you do have to understand Forex volatility and Forex timing.

"Only in fairytales.

As I said, the price of a binary option is based on the average volatility. If your option expires next week then the seller of that option will calculate how much the underlying pair moves in 7 days and will add his comission.
If the pair's price moves a certain number of pips in the opposite direction, your chance of reaching a certain price is decreasing accordingly and that is of course factored in the current price of your option.Only in fairytales.

As I said, the price of a binary option is based on the average volatility. If your option expires next week then the seller of that option will calculate how much the underlying pair moves in 7 days and will add his comission.
If the pair's price moves a certain number of pips in the opposite direction, your chance of reaching a certain price is decreasing accordingly and that is of course factored in the current price of your option"

Then I must live in a fairty tale world for REAL. I did exactly what you said can't be done on the USD/CAD yesterday. I have the statement to prove it. I hopped right back into another pair (USDCHF) and I am on my way to profit.

Are you going to take my bet?

Go over to Oanda and take a look at their price box options...... I think it is similar to what you are talking about.
I don't trade it because I don't like it............

I imagine a box option would be harder to trade. With Binary Options the price has to be below or above a set price, and then you win or lose according to that final outcome. With box options, the price has to be between TWO PRICES at a certain POINT IN TIME. That sounds like something I wouldn't be interested in either, I don't blame you for not having any interest in them.

I just want to say that if I have been giving the wrong impression about Binary Options then I apologize. Binary Options are no free ride, and as in all markets, there still are going to be more losers than winners. This is just the law of nature. With Binary Options you still must:

1. Discover a trading system that is good with predicting price action.
2. Have the discipline to stick with that system through losing streaks.
3. Have great emotional trading control against fear and greed.
4. Practice good money management.

Binary Options are simply another OPTION for those who have Spot Forex experience. You still will need Spot Forex experience first.

Options are always interesting to me becuase they work so much differently than the markets they're based on. You can really improve your risk/reward ratio, especially if you are selling them and know what you're doing.

I wonder if there is any platform that can trade these automated? Maybe MT5 will have that? I know it's supposed to be able to trade stocks and some kind of options, if your broker offers them.

You can set these up to profit off of a move INSIDE a range or OUTSIDE a range. And all options have an expiry time. You can have the boxes be anywhere from a couple hours to weeks long if you like. Of course the longer the box, and thus the higher odds for you, the lower profit you will stand to win.

Comparing trader A with a 60p stop loss with his spot position to trader B with no stop loss with his binary position and concluding that trader B will not lose as much if usd/cad reverses back in the other direction after spiking up, is not a good comparison - what if trader A didn't have a stop loss on his spot position and he also waited to close his position at the same time as trader B?

Hi Yoda,

I've been dabbling with Binary options for quite a while. While I am reasonably successful in Spot Forex, I tried Binaries to increase the Risk Reward. The problem is invariably the time decay kills you on almost all daily binaries. And it is not the easiest thing to predict volatility. The news always comes priced in. I'm not against binaries and think they are a wonderful way to make money. Just that I havent figured it out yet. Would be interested in discussing strategies taht I use with traditional options and spot forex to figure out a successful BO trading strategy.

Cheers

Aj

Jedi, look. One trade or 8 months of trades are not proofs. I can show you 6 months of GBPUSD using binary options which would have kill your account.
Your options work if the market is trending or suddenly very volatile. But these are the exception and not the rule.
I'll take your bet if you can mathematically prove that binary options are better than spot.
As the word "volatility" doesn't seem to be in your vocabulary I can't believe that you understand what these options are about. You only talk about avoiding stops as it would be enough.

I have done some calculation (one touch option only) before and the result showed that it has higher house edge than spot fx. Although there are certain moment that the expectancy value has turn positive but the broker has reduced the payout ratio significantly or did some other tricks so that your original edge has turn into negative.

Although there is no stop loss issue in binary option but please do not forget that you are betting against time value decay in binary option too. The time value itself has been factored in payout ratio. The interest rate arbitrage opportunity is also not possible because it has been factored in your payout ratio too.

IMHO the only advantage in binary option is that only a little (very little!) money is required to open a position which has a value equivalent to spot fx. So you maybe able to make 20000 bucks with initial capital of 1000 bucks in a night. If you want to open a similar position (with stop loss of 1000 bucks) in spot fx then you will need much higher initial capital to cover your margin requirement. So if you want to gamble for a windfall profit then binary option is a better choice than casino.

Hi,

If I'm not wrong IG Index is a big name in spread betting. They can be very tricky to win always against you.

Remain fan of spot FX as with discipline you will easily track trends & surf them than this gambling.

Regards
13

This is quite interesting - binary option price is based on historical volatility, not implied?

Both. I've seen prices skyrocket to un-purchasable levels during huge events.

I almost forgot to mention...

Getting in and out of Binary Options, to skim a profit before they close, is also a good tactic, so to is using Binary Options as a hedge against your Spot Forex positions or against other Binary Options.

Unfortunately, the demo doesn't do Binary Options justice as there is no liquidity in the demo. Cheers.

This is interesting, because I am a options trader and a forex beginner. I will look into binary options further.

However, to clear up some misconceptions, having volatility is good, because of high risk, high reward situation. My background is trading income trades in the options, using bull put spreads (one side of iron condor) when the market comes down and I expect the market to go back up and using calendars when the market is up (like now) and I expect the market to go down with volatility. Both these method rake in 5 to 10% returns per month, trading time 7 to 30 days. What this translate is that there is a 95% probability of winning each month.

So what happens is that in 12 months, the expectancy is to win 9 or 10 and lose 1 to 2 months. The rate of return is 39% (2008) to 64% (<2008>)per year.

So basically if binary forex options works around the same way, a trader would gain these benefits

a) A defined risk with a hard stop (ie max lost is $ paid)
b) A strategy like selling the binary options 80 to 90% outside the trading range of currency pair.
c) Benefit from the up and down movement of the currency.

For example if EUR/USD is now around 1.30, the next resistance based on daily chart is 1.33529 and 1.3702, 1.38143 then 1.40. Then if I know the volatility of the currency, I can calculate the standard deviation and I sell a contract at the 1 standard deviation or 1.5 SD away. Lets assume at 1.39 for $10. My risk reward is 1:10 which in most forex trader view is very very bad. However, in options world, the chances of me winning the $10 is 90% and I win most of the time because

1) Time runs out for the buyer
2) The market moves up and down and I can see where the beast is coming towards me (triangles, flags etc in the candlesticks)
3) If the price do break the 1st resistance line I become wary and maybe I can buy back the options at lets say $15? losing $5? or I can wait till it breaks 2nd and 3rd resistance line.

http://img839.imageshack.us/img839/2037/84777916.jpg



Now I don't know if binary options work the same way as options in terms of Implied volatility but basically this is how I do it for my options.

Why volatility is good?

Because when the market is volatile, people become scared and the prices of options get inflated. In the (bad) example above, the price trend is up, so the implied volatility (if there is one for the binary option) becomes lower and lower. But when the price drops suddenly to lets say 1.20, the volatility will spike up and you can sell the options contract with more $ AND at the same time do it behind more support/resistance lines.

For example, with the above uptrend, treat the price as a big elephant, it has charge and charge and charge, but once it exhausted it's daily quota of pips energy (lets say using ATR), then it becomes unlikely statistically that it can charge more. So by calculating pips energy x days, you can roughly guess how far a charging elephant can reach you in x number of days. Then put a few walls between you and stand above a tower, you can see the elephant coming and give you more time to react. Occasionally, the elephant ate some viagra weeds (like the Euro in May) and punched through all the walls so fast you get knock off the tower, (that when we pay the buyers), but in most days...sellers of options laugh their way to the bank each day passes as the option become more and more worthless

Just a bump up with a little F.Y.I.

Binary Options through Nadex are exchange traded, so therefore you are trading against other traders and not against your broker, unlike Spot Forex. A lot of you are losing in Spot Forex because your broker has a vested interest in you losing.

With Binary options you are trading against me. And our agreement/contract is often not in conflict because I am putting up loads of money to cover against your far flung hedge position (ie., you put up $10 and I put up 90$...you have a 10% chance of your position closing out in a win, and I have a 90% chance of winning. If you win, you win 10x your investment.)

Honestly, I first came into Binary Options with a Spot Forex trading mentality and that didn't work out too well. However, if you trade Binary Options like stocks, that is buying/selling something pricey to make a %8 or 12% profit at the end of the day, you can make a killing....like I am now. Just think of the expensive Binary Contracts as being zones that lay above or below support and resistance levels on a pair. If the pair closes below or above that support or resistance, you would have gained x% at the end of the 3pm closing.

I am interested in Binary options, but on one thread you stated you can buy an option for $20 an dif it is "in the money" you get $100: but on these websites I am reading you only get up to 81% of your investment: or $16.20. Where are you going/ What broker are you using specifically- in which you can make 4 times the amount if you win and lose only the initial investment?

And I am aldso reading that the maximum you can open an account is $3000?

Lastly- are they using a central exchange like stocks and futures, or is it per broker, like spot FOREX?

BUMP!