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Aug 16

Personal Advice on Binary Option Trading

Posted by abiao at 14:12 | Others | Comments(2) | Reads(9018)
In my previous post Binary Option Trading I introduced a simple online trading platform Eztrader, where investors are allowed to trade hourly, dayly, and weekly call/put binary options on different stocks, currencies, indices, etc.

I have more words to say after posting that article almost half a year, and generating around 60% return, although still a small sum of money. A few personal advice:
1, binary option trading is riskier than equity trading. It is nearly a 0 or 1 game, you can double and empty your investment quickly than you thought. For example, a daily call option has a payout ratio of 81%, which means for a $100 trading, you earn $81 if you "bet" correctly the direction, and lose $95 if you are wrong. So don't trade unless you realize a clear pattern, I feel much better to wait for the next opportunity than to trade my luck;

2, since the hourly & daily options are too short to be analyzed and backtested, unless you can get access to high-frequency data, those momentum & trend following strategies are not useful for the binary option trading. Those strategies listed at High Probability ETF Trading Strategies on Stock and Quantitative trading strategies haven't found a place for me;

3, you can control you risk (decrease the chance to win as well) by buying a lower strike call and a higher strike put, (a strangle portfolio). So when the closing price is within the range of lower and higher strikes your profit is twice as a single option, and is limited when the closing price is outside of the range;  

4, the world markets are correlated & influenced each other somehow. Due to the time lag, German market opens when Shanghai market closes, and US market opens at the afternoon of German time. I do make profit by buying call on German DAX and NASDAQ when Shanghai Index is up over 3%, and by buying a put on German DAX and NASDAQ when Shanghai Index is down over 3%. Also by buying a call on NASDAQ when the open price of German DAX is 1% higher than yesterday's closing price, and a put when 1% lower. why is 3% or 1%? it is backtested & supported by my historical data, the reason maybe they are big enough to remove random walk;

5, the last but most important, don't bet your whole rest of life on it, it is good to put a small sum of money on it, have fun, be familiar with the recent market, test your strategy, but not for pure gamble.

Take a look at Eztrader if interested, and don't forget to share your thoughts, experience to us.

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EZTrader is not located in  a region of the world where I would feel comfortable sending my U.S. dollars.  A broker I do feel comfortable with, and have been trading with for a little over a week is: nadex.com.  They're located in Chicago if I recall correctly.

Frankly they make eztrader look like a scam(which eztrader is).  Nadex charges commissions per contract executed. Their market makers are quite good from what I've seen so far.

Their spreads are notsuper, but definitely better than the cboe's binary options. The spread is typically 5 points, but is closer on some contracts.

Just thought I'd make the comment since the author didn't mention them, and this article has already seen almost 2000 page views.
Pretty nice and precise, things are in the correct spot.
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