Easy How To: Use Hedging With Binary Options
|Many subtle aspects of Binary Options often go unnoticed by Binary Option traders. The most interesting perhaps is that there are many ways to trade Binary Options in a manner that reduces risk. One of these is hedging.
The principle is simple: Strengthen your position if you are right and hedge it if you are wrong. Let’s see how this works. In the images below, the GBP/JPY succeeds in a breakout in CASE A and fails the breakout in CASE B. Using your Binary Options trading account, at www.StartOptions.com for example, you would place a CALL Binary Option trade at the moment of the breakout in both CASE A and CASE B. In CASE A the breakout succeeds and you reap an 85% profit, say $85 if your trade stake was $100. However in CASE B the breakout fails. At this point you have 2 choices: lose $100 or hedge your trade. If you choose to hedge your bet by placing a PUT Binary Option trade when the breakout fails, the trades now cancel each other out resulting in a $15 loss instead of a $100 loss(win $85 – lose $100 = $15).
So let’s assume that 50% of breakouts succeed, in a pessimistic world. Under this assumption you will win $85 (50% of the time) and lose $15 (50% of the time) which makes a steady income of $70.
One interesting comment on Binary Options hedging: don’t try this with your conventional Forex account…conventional Forex accounts don’t allow you to hedge on the same instrument…if you try it you will find yourself selling off you own position!
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