Lose Little With Hedging - A Binary Options Trading Strategy

The popularity of binary options is owed due to the fact that any risk associated with the trade is calculated and predetermined. However, even with the calculated risk, no trader wants to end up on the 'loss' side of the outcome. Hence, different strategies are employed by traders to make their binary trading options more profitable; one of these techniques is Hedging.

Hedging is used to reduce any possible losses, and maximize the gains incurred by any organization or individual. In the case of binary options, traders use hedging to reduce risk of investment to the lowest possible. To do this, they use methods like call and put options, future contracts or short selling techniques. Through this, they are able to secure their existing profit and diminish the instability of any portfolio, so that whatever profit they already have, will not be lost. Hence, a combination of hedging and binary options yields the best profit and lessens loss.

Binary options as a trade are short-term in nature, which means that their trading life is usually of an hour or a day, at the most. Since time is a constraint here, the decisions which yield profit from your binary options needs to be made carefully. This is where partial hedging or complete hedging comes into play. The price and total profit of a share has a value which can be gained before the time expires, by either keeping or selling the shares. At this point, careful use of the call and put options can take the profits to double amount.

In binary trade, complete Hedging means to sell off all the shares as soon as the profit is at its maximum within the hour, so that the total profit can be maximized. Partial hedging is meant for selling half of the shares and keeping the other half before the hour expires. In this manner, even though there is still some risk involved, but it is reduced by half the percentage, as compared to keeping all the shares. Partial hedging is used in binary options when the prediction is in line with what the trader needs. Hence, the risk on the shares sold is diminished, and those kept can be minimized through correct prediction.

This is a relatively simplistic binary trading strategy, which assists traders in making good profits and eliminating risks. The hedging technique is not only used by binary brokers, but also by many other financial instruments like swaps, forward contracts, insurance etc. When trading in binary options, familiarizing yourself with hedging is valuable in order to utilize its benefits.