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  1. #1
    Administrator Martin Kay's Avatar

    Hot Binary Options Hedging Strategy - Profit Slowly !!!

    Hi, guys! We have a new Review presented by Bogdan on the Binary Options Hedging Strategy, originally posted on the Michael’s blog! Bogdan explain all the pros and cons of hedging in binary options trading. Check it out and find how to use these strategy in your day trading!

    Originaly posted by Bogdan G

    I’ve been thinking lately: being a good technical analyst but also aware of the fundamental aspects like news and economic data or political events will definitely make you a better trader…but not a complete one. In order to achieve the next level in our trading, we must learn to manage risk. There are different techniques of doing that, ranging from simple ones to extremely complex but the best are the ones that you can understand and comfortably use.

    My friend Michael Hodges, aka “The Geek” shares my view on the need for controlling risk and extends a helping hand by explaining in detail a widely respected technique called Hedging. The full article can be found here: http://tmhughes.hubpages.com/hub/Hed...ptions-Traders

    Just like I said earlier, the choice of using or not a hedge boils down to personal risk appetite. If you are the type who wants to go into the market with guns blazing and war paint on, forget all about hedging because it limits profits. On the other hand, if you need a shield in battle and a heavy armor, go for the hedge but know that it will slow you down a bit and as a reward, you will get more protection. Finally, I strongly encourage you to read Michael’s article, especially because in the final part he has some great tips about using two brokers to increase the profitability of a hedge as well as some great tips for advanced hedging.

  2. #2
    Veteran Member Ammeo's Avatar
    Newbies are recommended to use Hedging as it could be difficult to understand the market in the start. I once saved myself from a big loss on SIlver cause of the hedging strategy i had put on the metal. Once you get to know more about the market and feel more confident about your system, you may remove hedging techniques from your trading.

  3. #3
    M.J
    M.J is offline
    Veteran Member M.J's Avatar
    It was really nice article for novice traders to understand hedging in binary options.
    Here r my views on hedging and its usage in binary options world.
    Hedging is not just "a part" of strategy but a full strategy. Usually traders misuse it and some have even adopted funny ways of implementing this strategy. Objective of this strategy is to limit losses but it is used without logic and results in limitation of both profit and losses. So novice traders need to understand how to implement.
    Risk management is not all about hedging but hedging is risk management. Hedging comes once a trader has executed a trade and now he is confused where the market will go. If he thinks it will go against him then he will hedge current option. Here traders make a mistake and they use hedging technique in "panic" without doing much analysis. Usually a small move can be a result of intermediate to low level news and market may recover within the time of ur option. So trader needs to do all technical and fundamental analysis which he performs before entering an option. Hedging wont be successful if a trader is trying it in "panic mode".

  4. #4
    Legendry Member milos's Avatar
    Binary options provide the possibility of hedging operations.Trade only takes 5 minutes.If prices move in the opposite direction there is always a possibility to be traded in the same direction with the current price.For example, if we bought a pair for $ 5 per EURUSD put option price increases then we may perform a hedging operation buy USDCHF currency pair at call option for $ 5. Done to protect your capital.If dollar continues to strengthen in the 5 minutes we could buy $ 5 for the currency pair USDJPY at call option and earn money.
    Last edited by milos; 03-30-2013 at 08:46 PM.

  5. #5
    Senior Member raymond09's Avatar
    Basically Hedging means being able to lock-in the profits earned from the assets being traded. Itís almost like taking two sides of the same trade. Letís assume you are a trader with 15 minutes left until expiry time on the EUR/USD. With your current trade running in the money, the strike price of your $100-deposit on this asset at 85% return is already valued at $185. At this point in time, you may employ hedging strategies in order to lock the current profits. At this point put on the trade. If you see five minutes before expiry that the movement is going against your trade then place CALL. That way you have hedged your trade and will get most of your money back.

  6. #6
    Specialist Member runneroption's Avatar

    !!!

    Quote Originally Posted by raymond09 View Post
    Basically Hedging means being able to lock-in the profits earned from the assets being traded. Itís almost like taking two sides of the same trade. Letís assume you are a trader with 15 minutes left until expiry time on the EUR/USD. With your current trade running in the money, the strike price of your $100-deposit on this asset at 85% return is already valued at $185. At this point in time, you may employ hedging strategies in order to lock the current profits. At this point put on the trade. If you see five minutes before expiry that the movement is going against your trade then place CALL. That way you have hedged your trade and will get most of your money back.
    It is almost as you say Ė hedging is mostly to lock your profits when you are close to expiration time. But you didnít tell something important. It is not necessary to place the opposite trade with the same amount of money. It could be smaller one and in this case if it is not profitable you will lose only a fraction of your profit from the first binary option.

  7. #7
    Rookie Member
    Nice article. I just don’t understand, in example of the article, what’s the difference, if instead of hedging, I just invest 50$ on call? If the prediction is correct I would win a bit more, and if it’s not I would lost the same. Or it's something you use only after I have already a trade executed and I see that the market is going against me?

  8. #8
    M.J
    M.J is offline
    Veteran Member M.J's Avatar
    Quote Originally Posted by yabune View Post
    Nice article. I just don’t understand, in example of the article, what’s the difference, if instead of hedging, I just invest 50$ on call? If the prediction is correct I would win a bit more, and if it’s not I would lost the same. Or it's something you use only after I have already a trade executed and I see that the market is going against me?
    Yes. Hedging, in most cases, is used once u have executed a trade. Hedging is to minimize loss and not to maximize gain.

  9. #9
    Specialist Member marvel's Avatar
    I don’t like hedging because it decrease the potential of the wining trade, minimizing some risks if the market turn against you, but there is also a possibility that neither original nor hedging option ended in the money and you will lose more than original investment. So I prefer to take the full risk and trade only depending on the market conditions not for hedging purposes.

  10. #10
    Legendry Member Michael Hodges's Avatar
    Lots of good points here on hedging. I would like to point out that MJ's views on hedging are correct. The problem with binary options is that it is not possible to sell positions short, creating a credit and locking in profits. This strategy is intended to help reduce the risks of losses while allowing for the maximum potential gains. In answer to the question by Yabune.... trading $50 is not neccesarily risking $50. Check the math and see how hedging a position can provide better returns than simply choosing to trade a smaller position.

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