Using Forex Binary Options To Hedge Spot Trades!
Discover these Forex Binary Options Systems that can make 402% return daily. Download the Advent Forex Course FREE. Learn this powerful Fibonacci Retracement method FREE that pulls 500+ pips per trade. Many forex traders don’t know about the forex binary options. Even if they do, they don’t know the profit potential these forex binary options offer. Within one hour, you can make a return as high as 81% on your investment with them. Forex Binary Options are also known as Exotics or Digital Options and you can trade many currency pairs including the popular ones EUR/USD, USD/JPY, GBP/USD, USD/CAD, USD/AUD and others with them. When you make a bet on the direction of the market with these contracts, you get a payoff of $100 if your bet turned correct and you get a payoff of $0 if your bet turned out to be wrong.
The most popular forex binary options are the hourly and half hourly forex binary options. Forex Binary Options can be used in hedging your spot positions in the forex market. Let’s illustrate this with an example. Suppose, you are trading EURUSD pair on the daily charts. You go long at 1.2567 with a stop loss of 30 pips hoping that the uptrend will continue for the next few days. You are expecting to make some nice pips.
Forex Binary Options come with half hourly, hourly, daily, weekly and monthly expirations. You can trade them in many ways. But here we are going to show you a unique way in which you can use them to hedge your spot positions. This forex binary options strategy can be used to reduce your risk further in the spot market. Suppose, you want to trade the EURUSD pair. It is in an uptrend. You take a long position on EURUSD when the exchange rate is 1.2567 and place the stop loss 30 pips below your entry. Suppose, you are trading on the daily charts!
30 pips stop loss means a loss of $300 on a standard lot of $100,000. The stop loss will be hit when the exchange rate becomes 1.2537. Now, you can use forex binary options to hedge your spot positions and lower your risk even more with this strategy.
If the spot trade that you had entered goes well in the next 24 hours, you lose the $100 that you had invested in buying the five forex binary options contracts. This loss is equal to 10 pips on the standard lot. Suppose, within the next 24 hours, the market moves up by 40 pips, so your cost of 10 pips in creating the hedge had already been covered. But suppose, the market moves down by 40 pips in the next 24 hours. Your stop loss is hit when the exchange rate falls below 1.2537 causing you a loss of 30 pips or $300. But at the same time, your five forex binary options contracts give you a net profit of $400 meaning you make $100 when the market moves against your trade.
This forex binary options strategy can be used in hedging your position in day trading, scalping and swing trading. Sometimes, traders are reluctant to enter into a trade with a stop loss of 30-40 pips or more even when there is a good risk to reward ratio. Using this forex binary options strategy you can hedge your spot positions and lower the risk even more making you comfortable in using a 30-40 pips stop loss.
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