Binary Options Spread Trading Strategy -

Binary Options Spread Trading Strategy

In the world of finance, a spread trade is the simultaneous purchase of a specific security and sale of a related security, These securities are called “legs”.The objective of a spread trade is to profit from the difference in the two legs — called the Spread Trading Strategy. Futures and options typically form the legs of a spread trade.

Spread trades are executed as a single unit so that

  • The completion of the trade is synchronized.
  • The risk of one leg not executing is prevented.

Any change in the market fundamentals will tend to affect both legs similarly. This reduces the volatility off the spread itself as compared to the volatility in the two legs individually. The margin requirement for a futures spread trade is hence usually less.
There are three common types of spread trades: Calendar, inter-commodity and option spreads.Calendar spreads are executed with legs differing only in delivery date… An example is the market comparison of September wheat futures and October wheat futures Inter-commodity spreads reflect the economic relationship between two different but comparable commodities. The relationship between gold and silver prices is an example.

An option spread is formed by buying and selling the same stock at different strike points.

Types of Spread Trading Strategy

  1.  The Inter-Exchange Spread
  2. The Crack Spread
  3. The Crush Spread
  4. The NOB Spread
  5. The FAB Spread
  6. The TED Spread

Spread Trading Strategy:
A key factor in deciding Spread Trading strategy is to first make an evaluation of Pros and Cons. Here are some basic pros and cons which impact spread trading strategy:

PROS Of Using Spread Trading Strategy

  • Spreads in commodity futures offer lower margin rates.
  • Spreads as mentioned earlier, are usually less volatile and prices move less quickly, which is good for beginners.
  • Spreads offer hedging opportunities.

CONS Of Using Spread Trading Strategy

  • Spread trading incurs much higher transaction costs (commission).
  • Spreads can be less liquid than other trades.
  • Spreads usually have limited profit potential

Common sense is a major element of spread trading strategy. Before entering into any spread trade ensures you really have a reason to be using this type of trade, and if so, the purpose of it… A very important aspect to watch with spreads is transaction costs.

Binary Options Trading
Binary options are high risk financial instruments involving prediction of the price of an asset at a certain period of the day.The two main types of binary options are the cash-or-nothing binary option and the asset-or-nothing binary option. The cash-or-nothing binary option pays some fixed amount of cash if the option expires in-the-money while the asset-or-nothing pays the value of the underlying security. Since there are only two possible outcomes the options are binary in nature.
Binary Options may be Non exchange-traded or Exchange-traded binary options.
Advantages to Binary Options Day Trading

  • High Yields.
  • Quick Turnovers.
  • Assets to Trade and their Availability.

Best Binary Options Strategy
Some of the best Binary Options Strategies are:

  • Bungee Option trading strategy.
  • The 60 seconds strategy.
  • The Hedging Strategy.
  • The Reversal: The reversal binary option strategy is the most popular with the traders.
  • The Straddle.
  • Double Trade.
  • Market Pull Strategy.

However, what works for one may not work for another. You need to decide and choose the best Binary options strategy that fits your objectives. Doing proper research on your chosen assets will help in choosing the best binary options strategy.

Conclusion 

Financial markets are constantly innovating and experimenting. The future may well see esoteric products which may involve Spread trading and Binary Options.
There is always going to be some sort of risk even in any form of trading. How you manage your risk will determine the profits you can earn from your trade.

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