Day trading on the dips with a binary option broker can be risky when done as a stand alone trade but using a binary option broker to hedge against intra-day market movements can greatly improve day trading results. Traders who take long equity positions on dips in the market but can’t gauge for certain whether the market has bottomed can use binary put options to get back some of the money left on the table.
The way a transaction might work goes something like this: a day trader is following his or her target stock in the market, when the market suddenly turns downward and a buying opportunity or trade trigger is activated. Presuming the trader has either acted on acquiring the new long position in their target stock or is still trying to determine where the bottom is – an opportunity to call in and use a binary option broker is available. Once the trader makes his move in the long equities market, he can jump over to the binaries platform and buy fixed dollar amount spot-priced put options contract.
Granted there are significant limitations on this strategy, namely:
- A limited selection of binaried securities
- The limited time window of opportunity on big movements
- The guess work in determining the right-size contract to execute
On the other hand prepared day traders have the following advantages:
- Large companies must set news announcement dates well in advance – allowing maximum preparation for individuals day trading the stock
- A spot price binary option broker gives a retail investor an immediate margin for error (buying at ask in equity market while buying puts at the spot price) given the differing pricing structure
- Binaries trade commission free at some brokerages – no transaction costs make satisfactory day trading returns easier to achieve
- High yields on binaries reduce the required capital needed to make them effective
There are obviously risks involved with any trader’s strategy but being prepared and educated in how to use all of the available tools at hand can greatly enhance trading results.
Source by Steve B Wise www.positivestocks.com