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Advanced Trading Tools
TRADING TOOLS AND STRATEGIES
The Basics: Binary options are a simplified form of trading. In order to grasp the concept of binary options trading, three key notions must be comprehended:
1. The Underlying Asset :This is the first component to any trade;
choosing an asset. At iOption, over 85 underlying assets are available
to clients. The assets are drawn from stocks, indices, currencies and commodities.
Many traders focus on one asset, one sector or a compilation of many sectors. iOption gives the client flexibility and control with it's vast array of options.
2. The Contract and the Expiration: Once an underlying asset is chosen, the contract for the option must be executed. At iOption, once again, flexibility is offered to its clientele. Contracts are offered with expiry rates ranging from fifteen minutes to thirty minutes to one hour to end of day to one week and to even one month. You, the client, can purchase a contract up to five minutes before expiration, allowing you to grab a hold of any trend.
3. The Prediction: Depending on market data and other information used in guiding your prediction, a call option or a put option is determined. If you think an underlying asset will rise above the strike price, or the price of the asset at which the contract is executed, then a call option is placed. If you think the asset will fall below the strike price, a put option is placed. If the prediction is correct, your earnings will generally range from 75% to 90% (subject to the traded asset and selected expiry time), which is approximately double the initial investment.
Many traders focus on one asset, one sector or a compilation of many sectors. iOption gives the client flexibility and control with it's vast array of options.
2. The Contract and the Expiration: Once an underlying asset is chosen, the contract for the option must be executed. At iOption, once again, flexibility is offered to its clientele. Contracts are offered with expiry rates ranging from fifteen minutes to thirty minutes to one hour to end of day to one week and to even one month. You, the client, can purchase a contract up to five minutes before expiration, allowing you to grab a hold of any trend.
3. The Prediction: Depending on market data and other information used in guiding your prediction, a call option or a put option is determined. If you think an underlying asset will rise above the strike price, or the price of the asset at which the contract is executed, then a call option is placed. If you think the asset will fall below the strike price, a put option is placed. If the prediction is correct, your earnings will generally range from 75% to 90% (subject to the traded asset and selected expiry time), which is approximately double the initial investment.
Technical Analysis
Technical analysis is a method of analysis in which market data including charts of price, volume and open interest is studied in order to assist in the prediction of market movement.
This form of analysis is primarily used for short-term trends. Technical analysis has vast methodologies, both objective and subjective, that are used in order to help determine direction of market movement.
Trend Following
This form of technical analysis is based on historical data. By analyzing the moving average of historical data, trend prediction is calculated.
Let’s look at an example…
If you want to determine whether or not oil is exemplifying an established trend then the following
actions are taken place: The two-day moving average and the five-day moving average of the
commodity are observed. Once noted, if the two-day moving average crosses either above or below the five-day moving trend, then it can be determined that a trend is existent.
If you want to determine whether or not oil is exemplifying an established trend then the following
actions are taken place: The two-day moving average and the five-day moving average of the
commodity are observed. Once noted, if the two-day moving average crosses either above or below the five-day moving trend, then it can be determined that a trend is existent.
Means Reversion
Means reversion suggests that the prices of underlying assets retract back towards its mean. The average can be the asset’s historical average of the price or the historical return. It can even be a relevant average such as growth in the economy or the average return of an industry.
Tracking Momentum
This method is very common in technical analysis. It is based on MACD, or, Moving Average Convergence Divergence. MACD is an indicator that shows the relationship between two moving averages of prices. The MACD is calculated by subtracting the 26-day exponential moving average (EMA) from the 12-day EMA. A nine-day EMA of the MACD, called the "signal line", is then plotted on
top of the MACD, functioning as a trigger for buy and sell signals. Although somewhat complicated,
this indicator determines the momentum of an asset’s direction. Once calculated, the information can be
used to track day-to-day changes of both short-term and long-term averages. If short-term averages are greater than long- term averages, momentum should increase. If the reverse is calculated then
momentum should decrease. This information can lead to hefty profits.
Pattern Return
Pattern return is used by many analysts in order to determine movement of an asset, sector or market. It can be complicated in discovering patterns, but if done, the payoff is beneficial.
One such way of determining movements is by means of a stochastic oscillator. This type of technical momentum indicator compares the closing price of an underlying asset to its price range over a given period of time. This indicator follows the momentum of the asset's price due to the rule that momentum changes direction before price. This indicator is critical for investors to in order to track trends and seize opportunities for profits.
Fundamental Analysis
Fundamental analysis differs from technical analysis due to the fact that it is based on macroeconomic determent. Fundamental analysis focuses on the true value of an asset, sector and market, rather than solely hard data and the economic well-being of a financial entity, as is the main focus of price prediction and includes quantitative and qualitative information.
Quantitative
Quantitative fundamentals are the numeric values that are used in calculation of price prediction. These exact figures allow analysts a base of evidence in forecasting. This precision accounts for accuracy and allows an investor great opportunity for profit.
Qualitative
Qualitative data plays an extremely important role in fundamental analysis. Any and all information regarding the asset, sector or market in focus is considered qualitative data. In essence, the true value or the intrinsic value is being measured for price prediction. It is because of this reason that fundamental analysis is associated heavily with long-term investments. By determining the true value of something, you are in control of your investment; you are able to determine if an asset, sector and market are undervalued or overvalued. By doing so, opportunity is created for you to catch the trend.
For example
If you determine that a security is trading at $25 but the true value of that security is $30, then you have determined that the security in undervalued. This means that although the economy has not adjusted
itself to correctly display its value onto the asset, it will in the foreseeable future, meaning the price
of the asset will increase.
In joining quantitative and qualitative analysis, fundamental analysis becomes an extremely powerful tool in predicting market movement. There are so many factors that can help determine price; from income statements to market alert to breaking news. All play important roles in predication.
Money Management
When making the decision to invest, you are making the decision to manage money. Money management is crucial in being successful in trading. It is imperative to follow the tips below in order to minimize risk and maximize profit. These tips are designed to keep psychology minimal and emotions at bay so that your decision making is rational. 8.5%: Never risk more than 8.5% on one trade. This figure allows you 11 possible miscarries and still have capital left to rebuild earnings. This figure plays the odds to the traders favour and gives you the greatest opportunity to trade long-term.
Be patient: When it comes to binary trading it is crucial to be patient. You must be confident in every trade. If you are not; DO NOT TRADE.
Wait for a solid opportunity. Remember, you do not have to trade every day to gain knowledge and experience, knowing when to hold is usually what distinguishes the amateurs from the professionals.
Be diverse: In any form of trading, diversity is key. According to the world’s greatest investors, without diversification, profitable success is limited.
Stay updated: Impactful announcements always affect the market and in the binary options world this means opportunity. Stay up-to-date in worldwide affairs and market announcements.
Be aware of trends: It is important to always to be on the lookout for trends. For example, if you notice Pepsi is rising, you may be able to assume its rival in the same industry will experience the same increase. This catch may be extremely profitable.
Do not invest more than you are willing to lose: This tip is a highly important concept to grasp. In this industry, all investors will lose at some point. How much will be lost is variable but it's key to expect loss. If you begin trading under the assumption that every trade will be successful, disappointment along with negative psychology will be a major cause of downfall. Only invest what you are willing to lose so that emotions are regulated.
There are many strategies used in trading binary options that lead to high earnings and at iOption, an unparalleled level of training is provided in order for you to feel comfortable and confidant in your trades.
The Correction
This strategy is quite simple; it is based on the assumption that an underlying asset will fall or rise after a sudden rally or drop. Assets tend to fluctuate but generally the associated price is corrected. So, a put or call option should be placed based on rapid change.
Hedging
Hedging strategies can be defined as the strategies that are designed to reduce the risk of investment by using put options, call options, future contracts or short selling methods. The basic purpose of using hedging strategies is to reduce the risk and potential volatility of an investment or a portfolio by reducing the risk of loss. Hedging gives the benefit of locking in the existing profits.
Although hedging strategies sound a little difficult to understand but in practicality they are much simpler. The actual implication of using binary option hedging strategy implies that the risk from the stop-loss zone is shifted to the area above the break out point. The prices at the breakout point are more likely to rise and there is lesser risk of failure. Hedging a binary trade with a call and put option significantly reduces the risk of the fast paced, high yield contracts of binary trading.
The hedging strategy is thus explained with an example:
A trader takes two contracts of EUR/USD of $500 each with an expiry time of fifteen minutes and a 70% return. The call option is purchased at $1.45727 and the put option is purchased at $1.45923.
From this trade, there are three possible outcomes associated, all which reduce risk.
Scenario One
This scenario depicts that at the time of expiration; the EUR/USD closes at the same the price of the call of $1.45727.
This means that your return on investment would total $1,350, or a $350 profit. Since the closing price equals that of your call price, your $500 investment is returned and your put collects $850.
Scenario Two
In this second scenario, the price of the currency pair closes at $1.8575 which is in between your call and your put options.
This means that you profit from both contracts. Your profit would total $700; $350 from each trade.
Scenario Three
In this final scenario, the EUR/USD closes at $1.45498. Your call would be "out of the money" giving you a return of $75 due to a protection rate of 15%. Since your put option is in the money, you earn $350 profit from that trade for a total of $925. Although this scenario produces a loss of $75, risk is drastically minimized.
Hedging can prove to be extremely worthwhile and it is much to your benefit.
This scenario depicts that at the time of expiration; the EUR/USD closes at the same the price of the call of $1.45727.
This means that your return on investment would total $1,350, or a $350 profit. Since the closing price equals that of your call price, your $500 investment is returned and your put collects $850.
Scenario Two
In this second scenario, the price of the currency pair closes at $1.8575 which is in between your call and your put options.
This means that you profit from both contracts. Your profit would total $700; $350 from each trade.
Scenario Three
In this final scenario, the EUR/USD closes at $1.45498. Your call would be "out of the money" giving you a return of $75 due to a protection rate of 15%. Since your put option is in the money, you earn $350 profit from that trade for a total of $925. Although this scenario produces a loss of $75, risk is drastically minimized.
Hedging can prove to be extremely worthwhile and it is much to your benefit.
It is our recommendation to set up a one-on-one training with your personal account manager to discuss further.
