Hedging is a way to reduce your trading risks. Hedging a binary option involves buying both a Put and a Call on the same asset, with strike prices that allow both to be in the money at the same time. That is, the strike price of the binary Call option is lower than the strike price of the binary Put option.
Consider what this means. If the actual price is between the two strike prices at expiration, both the Put and the Call options would be in the money, and you would make a healthy gain over your investment into the deals. This is the best scenario, and all it requires is for the price to be in a range, the size of which is up to you. Admittedly, the larger the range, the more the binary options will have cost you, but that is part of your assessment on making the trade.
In this situation when using the hedging strategy you would have to buy an option in point A that the rate will rise (Call) and buy an option in point B that the rate will go down (Put).
If, after your chosen period of time, the rate will be in the hedged area C, you will have won both deals. If the rate will be outside the hedged area, then you will have won either the deal A or deal B.
Any way, in case you have the trend rising higher than the the point B (the option was a Put one) you still have the partial profit due to the deal A being correct. Yes, of course the C trend position would have the quote cought in the corridor and thus you receive the double win.
This strategy is effective because, as you can see in the chart above, the rate has a tendency to change (“jump”), so it’s easy to predict the high points and make the right deals at the right time.
Advantages Of This Strategy:
- Profitable if used correctly
- Can be used in a small period of time (15 minutes), not the Turbo mode though as it offers up to 5 minutes only, when the chart is moving too quickly and it hard to build th corridor
- Easy to understand and use.
Disadvantages Of This Strategy:
- If the rate goes against your prediction you loose all your investment
Tips For Better Results in the long term:
- Play with smaller investments at the beginning
- Hold on to strategy – turn off your emotions
- Practice on a demo account
This article is not an investment advice.Trade here
NOTE: This article is not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future.
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