The trading of digital options involves the prediction of the price movement of a financial asset during a specific time frame. The trader is aware of the profit or loss that he is likely to incur from a trade at the beginning of the trade. Financial assets like currency pairs (USD/GBP, USD/JPYen, USD/Euro, GBP/Euro, etc), stocks (Facebook, Apple, Google, BP, etc), indices (FTSE, NASDAQ, Down Jones, etc), and commodities (Gold, silver, crude oil, etc).
If the trader correctly predicts the price movement of the financial asset, he will be in the money. On the other hand, wrong prediction of the direction of price movement of the asset class by the trader will cost him his money. Thus, the trader will profit from a trade when he anticipates the direction of the price movement correctly and will lose his money when he is wrong, which means that the trading of binary options is pretty straightforward.
Since binary options trading is risky, many strategies have been designed to help traders profit regularly from the market. Many people are professional traders who earn a living from digital options trading. It is expected that these professional traders should always come with strategies to make money from the market. As a result, different strategies have evolved to help both professional traders and part-time traders to profit from the market. Below are some of the common binary options trading strategies used by traders:
1. Buying a Call or Put Option: The digital option trading strategy is the simplest among all the different strategies available to traders. A call option is bought when the trader anticipates the asset price to finish above the strike price at the expiration of the trade. On the other, another trader expecting the value of asset to finish below the strike price will buy a put option for that trade.
By buying a call or put option, the trader is predicting the value of the asset above or below the strike price respectively at the expiration of the trade. If his forecast is accurate, the trader will be in the money. However, a wrong prediction will make the trader to be out of the money for that trade.
2. Buying Both Call and Put Option: Traders’ most used strategy when they sense that their trade will be out of the money. If a trader buys a put option and notices the direction of price movement is going against his forecast in the middle of a trade, he can purchase a call option to minimize his loss.
3. Trade Doubling: This strategy is one of the favorite strategies of professional traders. By using trade doubling strategy, traders can double the amount of profit they can make from a single trade. For example, a trader who purchases a call option for a trade and observes that he will end up in the money can purchase another call option to double his profit. However, since binary options trading is quite unpredictable, only professionals who fully understand the market should employ this strategy.
About the Author
D. Brezinski has been making money online for over 10 years now. His expertise in Forex and binary options trading allows him to allocate time for the writing of articles that he believes will help binary options traders to become more successful in their dealings. Mr. Brezinski currently contributes to ActionBinary.com where he writes professional reviews about binary options brokers.