There is more than one strategy for trading the news. Some news merchants have discovered a device for regularly adding to their profits during and around news trades. They are using something called the box option strategy. This article introduces traders to this reliably rare technique.
Options as a product for trading have been around for quite a while. Not all brokers are set up for this strategy. You may have heard of options within the context of stocks and futures, for example. A box option, however, is not a real option in the technical sense. Rather, it is a simple agreement between the Forex broker and the trader. The litter literally constructs a box on a chart at the broker's online trading platform with the hope that the price movement will cause the graph line to either hit or miss the box, as desired.
If the trader's assumption is correct, the trader wins a pre-determined amount of money, the calculation of which is derived from algorithms set in the broker's computer. On the other hand, if the trader's claim proves incorrect, the trader loses the total amount invested and gets paid nothing, unless the trader resells (typically at a discounted amount) the box to the broker prior to the expiration of the box.
It is important to note that, because the option, in a sense, is trading against the broker and not against another trader somewhere else in the world, the broker will get paid whatever amount the trader invests, whether or not the trader wins. Therefore, the entire amount of the investment may be viewed in a way as paying for the privilege of participating in this kind of trade. The incentive for participation by the trader, of course, is winning an amount which exceeds the amount invested by two or three times.
As with regular options, the box is constructed to last a certain period of time. The duration, however, would be in terms of minutes – or hours at the most – rather than weeks or months as with regular options. In addition to its time component, the box also covers a certain price range between the upper and lower borders of the box. Although, the trader chooses which time period and price range will apply to the box, the broker alone determines what payout will result from the settings utilized by the trader.
Although the box option, like other devices, involves risk, there are proven ways to help manage such risks. One such way would be to trade when there is a high probability of major moves. This, of course, would include trading when certain news reports are being released. This strategy does not have to be mutually exclusive where another strategy may be contemplated. Indeed, traders are using this along with other profitable strategies. Beside, who ever said you can only make money one way?
Sandy Robinson, JD