MUST READ - Binary Options Brokers Warnings
(+) You must always be careful when trading with binary options brokers, some of them that look to be legit and even are regulated have turned out to be nothing more than boiler rooms and bucket shops.
(+) When first dealing with ANY binary options broker first deposit a SMALL minimum deposit for trading.
(+) Never take ANY bonuses! After making profits from first trade ask for an immediate withdrawal.
(+) If you are called on the phone and asked to make any LARGER deposits ALWAYS say NO.
(+) After making a successful withdrawal of first profitable trade + deposit amount you can start to trust the broker.

Binary Options Hedging Trading Strategy

Many traders don't realize they can hedge binary options trades. Hedging allows you to position trades in a way that minimizes losses while having the potential to reap more profit.

What Is Hedging?

Hedging is basically an investing tactic that seeks to capture gains and/or prevent trading losses. This is accomplished by opening two trades in the opposite direction as a single combination trade. A good example of a hedge is a trader who has a trading position currently in the money, but in fear of the market turning against the trade, opens an offsetting sell trade. The difference between the two strike prices creates a spread, which creates an area of guaranteed profit for both trades. A tactic commonly used in traditional options trading is the covered call.

Binary Options Hedging Trading Strategy

Hedging in Binary Options

Hedging binary options trades is a little more clear-cut compared to hedging standard Forex positions. With Forex you have to consider stop loss and take profit levels, but with binary options you're primarily focused on expiries and timing. The way you approach binary options hedging can also be largely dependent on your broker. For example, a hedging strategy might be best utilized with a broker who offers returns on trades ending out of the money, or with brokers who allow you to exit trades early. In this case, winning one trade and losing the other may allow you to break even and walk away without losing any capital.

Hedging Examples

The first trade should be the one you're most confident will end in the money. So the wager of the first trade should be higher than the second – so that in the event both trades are lost, you can still turn a profit. A good rule of thumb to follow is to wager half of the first trade's wagered amount on the second trade. So if you wager a $100 Call on the first trade, the second trade would be a $50 wager on a Put. In this example, let's say your initial guess was right, and price continued to move up, so the second trade failed but the first was successful. With a 75% payout, you would still make a profit of $25. If both trades had ended in the money, you would've realized a gain of $112.50 from a single combination trade.

Hedging Tips

There is no right or wrong way to hedge binary options. It's still a relatively new concept. Use these tips to help you create an optimal hedging strategy that fits your trading style.

  • Understand your broker's payout structure
  • Expiry times for both trades should be as close together as possible
  • For the simplest possible method, open both positions simultaneously with the same expiries (not always recommended)
  • Use with trends. The first primary trade should be in the trend's direction, doing otherwise increases chances of losing
  • Advanced traders may give the first trade room to breathe by waiting to see price's direction before opening the second trade. If the first trade is in the money, it increases the chances of both trades succeeding.
  • Both positions do not necessarily have to close at the same time. If your first trade is under an end of day expiration and is in the money but you see a chance to capitalize on a short-term pullback, then you may place an offsetting position with a 5, 15, or 30-minute expiry, and still walk away winning both positions.