Binary Options Hedging

Binary options can be very convenient when used as a hedging instrument.

Hedging is done as follows:

1) A short position is opened on the spot market – for example EUR / USD – 0.05 lots, $ 50 investment on my part with a 1:100 leverage ,EUR / USD exchange rate was  1.28344

2) I put a stop order that limits my losses on the spot market at the previous highest maximum (fractal), in this case – 1.28984. The difference is  0.0064 pips X $ 5,000 = $ 32 potential loss.

3) With the use of the Option Builder, a binary option is designed to meet my specific requirements:  Call option with a return of 80% and an expiry of 5 hours. The profit I need is $ 32, that’s why I adjust my investment to $ 40.

What happens next?

The binary option expired with a profit of $ 32. In case that the stop loss had been activated I would have broken even on that transaction (investment). Since the stop loss was not activated, and consequently the price went below the price at which I opened the position, I was already winning and decided to move the stop loss at the level at which I had initially opened the position – in this case 1.28344.

Once I moved the stop loss at this level, I had already guaranteed a minimum payout of $ 32 and even if I had decided to close the position, it would have remained profitable. The pictures show that the price continued to fall, which suggests that I can put a trailing stop to move the stop loss automatically. Look at the photos below in the sequence Figure 1, Figure 2, Figure 3 and Figure 4. You can also read the technical analysis for the particular date

Figure 1


Figure 2


Figure 3


Figure 4

This Trading Strategy is provided by Dimitar Petkov


The charts and strategies in this article do not comprise any form of advice or recommendations by to buy, sell (or refraining from making) any trade or investment. It is recommended that you seek independent advice before entering into transactions.