Binary options trading is evolving rapidly, with traders and brokers both realising that there are a number of routes in which losses can be minimised while profits are increased, It is, however important to realise that there is no such thing as an entirely risk free trade, and in this sense, it is only possible to keep risk to the lowest possible never as it can never been 100% eliminated from the equation.
Traders can make their trading as risk free as they can be executing a single or multiple trade using the same asset which allows for a number of different results. This is called making a multifaceted trade, and involves a trader purchasing options in 2 different directions. If the asset moves in one direction, the trader sells call options at varying times to help bolster their trade. This gives them a better chance of profiting and getting some of their investment back.
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How to Place a Multifaceted Trade
A multifaceted trade can be made by buying a call options and the straight away placing a put option. Once this is done, the trader monitors the assets’ trends until it is obvious in which direction the trend is heading. When this occurs, the investor must immediately sell the option that is not in the current asset price direction. When this is done immediately, losses are minimised, and kept down to under 25% in most cases.
In a risk free trade, losses are normally offset as the trader is profiting from the trades which are trending accordingly. To make maximum profits, the trade must attain its expiry time rather than opting for early closure.
Risk free trading has revolutionised the world of binary options trading and many brokers are now offering the ability to take advantage of this type of trade.
Advantages and Disadvantages of Multifaceted Trades
Risk free trading is especially useful for novice investors as they are able to get a return of some of their investment fund without having to risk it all, however there are some drawbacks to this trading type. When executing multifaceted trades, an investor must continuously monitor their assets and therefore be tied to their computer screen for an extended period in order to know when to sell the option which is in the wrong price direction. This can be very off-putting to busy traders who don’t want to be tied to their desk. It is, however, possible to make risk free trading a full time job as it is a good way of making profits.
Adopting a multifaceted approach to trading is the best possible way of eliminating most of the risk from binary options trading. By following the behaviour of the market and by selling either the call or put option which is in the wrong direction, losses of only around 10% to 25% will be incurred and as you will profit from waiting for the other option to reach its highest possible amount, these losses will almost certainly be covered with additional profit gains on top.
There is even an opportunity when executing multifaceted trades to sell both of your options in profit. This occurs when prices take a rapid nosedive, so a put option can be sold at a profit. If the market then changes and trades above the purchase, it is then possible to make a second profit if another option (a call option) is placed at that time.
Understanding multifaceted trading is a great way to earn consistent profits and to limit most of the risks that are associated with regular binary options trading.
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- Algorithmic Trading Systems: A multifaceted view of adoption. Bell, D., & Gana, L. (2012, January). In System Science (HICSS), 2012 45th Hawaii International Conference on (pp. 3090-3099). IEEE.
- Predictability of currency carry trades and asset pricing implications. Bakshi, G. and Panayotov, G., 2013. Journal of Financial Economics, 110(1), pp.139-163.