Binary options are an easy and popular way to trade the markets, without the complexities of regular trading. Plus, you do not need tens of thousands of dollars to get started. You can achieve returns of 60% to 500% in less than an hour!
We will focus on the simple, fixed-payout binary options offered by brokers such as AnyOption, StartBrokers, Binarix and others. We'll use AnyOption in our example, since they have the best payouts of any fixed-payout binary options broker we've found. You can trade stocks, indexes and commodities with binary options, but we will concentrate on the forex market, due to the ready availability of free charting packages and technical analysis tools for currency traders.
In a standard fixed-payout binary options trade, a profitable trade pays out between 60-70%, while a loss will result in a return of 15% of your investment. This equals a total loss of 85% of your investment. A potential gain of 60-70% versus a potential loss of 85% does not put the odds into your favor.
However, I will share with you a powerful hedging strategy that creates a "profit zone" with an overall positive expectation. By placing a Put (sell) option above a Call (buy) option, it is actually guaranteed that at least one trade will be profitable. Due to our negative profit expectation, a simultaneous win and loss will result in a loss of 15%, while a win will result in a profit of 60-70%!
A potential gain of 70% versus a potential loss of 15% is a lot better than a potential loss of 85%! Here is an example of how we can do this. Let's say we're placing a call option in an uptrend. As long as the uptrend lasts, we'll realize a profit at the expiration time.
But what if the trend reverses? This is the perfect opportunity to place our profit zone trade. Simply place a Put option in the direction of the trend reversal. As long as the expiration price is above our Call option strike price, but below our Put option strike price, we'll receive an overall profit of 60-70% of our investment.
If one of the trades finishes out of the money, we'll see a loss of 15%, assuming that both trades are the same size. With these odds, we only need to win about 25% of our trades to make a profit. Without this strategy, we would need to win well over half of our trades.
This setup will not happen all the time, but as long as you always trade into a strong trend, and keep aware for potential reversals, you should see an overall profit trading forex binary options.