Investing in binary options requires various strategies to attain profits in every trade. Classic trading with binary options requires traders to choose from different kinds of assets which are stocks, currencies, commodities, and indices with basic options choices. Those choices include high/low, range/out-of-range/touch/no-touch where traders agree on the length of the option period, essentially choosing the expiry time and wait for it to end. Before, it was not possible to change a trade once it was made, but since innovation is also a part of binary options, brokers can now offer an early exit strategy which you can close the option before the expiry time.
Importance of Early Exit Strategy
Profitability is just one of the main goals in binary trading. You should also prevent losses in your investment or at least lessen them. You can avoid or reduce your losses if you close a trade early. For example, if an “out of the money” trade would result in an 85% loss, exiting the option early might result in a considerably better outcome, like a loss of only 30% - 50% vs. 80%. It will still vary in the current market condition when the option is bought back. An early exit increases trading flexibility because it gives every trader options vs. waiting for the expiry time and watching their losses grow when their investment moves opposite of the preferred direction. Another advantage is that the early exit option releases money that traders could use to buy more binary options. Despite the mentioned advantages, there are also other factors that need to be considered while using this option.
Factors to Remember in Using Early Exit Option
Using the early exit option is not something that a trader should use illogically to close trades. Losses are likely to happen often since traders are using market makers in trading and the broker is on the other side of the position, which could also possibly lead to the market maker going out of business.
• Early closures are not permitted in certain time periods. For instance, when a trade has been open for a certain amount of time, a broker might enable the early closure function. The function cannot be used “outside of this window”.
• Some trades like High Yield contracts cannot be closed before expiration. Market environment imbalance will likely happen if every broker allowed traders to close every trade with a 250% payout.
• Traders cannot receive full payouts when positions are closed because it carries extra costs.
• The biggest disadvantage in using this early exit strategy is you clearly accept a lower profit on an option that is in-the-money. Thus, whenever you see the market direction away from your predicted movement and you use early exit, it doesn’t purely guarantee that it will not reverse its direction once again before the expiry.
Binary options are one of the most uncomplicated business investments anyone could deal with, but over-trading and fussy decision making can ruin potential success in every trading session. Once you know your options, strategies or indicators and you’re already starting to use it properly, then it is up to you to apply it with the right timing and analytical thinking. Unforeseen events and sudden market announcements shift the market, and it is a really good thing that you can use an early exit strategy. Just bear in mind that one should weigh things first before jumping into a quick decision. That will take some time to become skillful, but patience and perseverance in trading binary options are always a basic key above all strategies.
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INO.com Contributor - Binary Options
Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.