Binary Options Hedging Strategy


There are multiple ways that binary options traders can implement hedging strategies to improve their likelihood of maintaining a profit on their trades. Hedging is not the ideal strategy for every situation and can actually cause greater losses when not applied correctly, but when done right, can help a trader to lessen the impact of a loss. Hedging methods do not usually produce a lot of profit, but they can help a trader to attain some degree of success even in a very volatile marketplace.

Binary Options Hedging Strategy: Straddling the Fence

One of the most common types of hedging is also referred to as straddling. While many traders attempt to use this strategy, they often do not consider the type of scenario that the technique is best used within. In many cases, a straddling strategy will consist of two different options purchased with varying strike prices on the same asset.

Ideally, if a trader wants to employ a binary options hedging strategy like straddling, they’ll need to compare the highest and lowest possible price of an asset and make a trade on each. This is easy to do in theory and much harder to do in reality. The best time to use the straddle is when the price moves with a set of boundaries that can be accurately predicted without a lot of volatility.

Depending on the specific scenario in which a trader is looking to implement a straddling technique, the expiry period for the option may be very short or as long as 15 minutes.

Binary Options Hedging Strategy: Other Common Practices

Most of the other kinds of binary options hedging strategies out there will be based around using an exchange.

When hedging in currency pairs, for example, you can place a trade on two different pairs of asset, even if they are moving in the same direction. That way, if one of the trades is successful and the other is not, you do not experience the same degree of risk as if you had simply concentrated your funds on a single pair. While your overall final profits will not be as great as a single success, you will also not experience the full impact of a loss using this method.

Traders can also place an option for two different directions for future value on a single asset. In markets that have a high degree of price movement, this can be a way to maintain some degree of profit without fearing consistent losses. Because a market can change so quickly, hedging strategies can help to ensure that a trader’s overall funds will not be depleted because of a single loss.

As is the case with any kind of technique or strategy that a binary options trader can employ, a good binary options hedging strategy is only as good as the situation that it is matched with. When used properly, a basic hedge can help a trader to maintain activity in a market that is unpredictable. However, when used indiscriminately, it can lessen the overall likelihood of profits and display a lack of discretion on the part of the trader who overuses it.