MORE ON BINARY OPTIONS TRADING
Let’s consider “the Spread” and the concept of “zero Spread”.
The Binary Option market, in most cases, has zero spread.
And let’s couple that idea with the concept of a fully “binary"
outcome. A very small favorable outcome yields a fixed
"non analog” profit value.
As you’ve observed, when you Lose, you leave your wager
on the table for the House to collect. And when you Win,
you a) keep your wager, and b) profit by Payout% of your
wager amount. No other fees are involved, and there’s
also no “spread” (in many implementations).
So, for a 50% payout, one Loss needs 2 Wins to bring us
back to parity. This is with a fixed wager amount. However,
we are also free to vary the wagered amount in any way we
wish. As in a Casino, we “bet big” when we have a strong
"edge" and “bet smaller” when that is not the case.
NOW TO MY MAIN POINT, and why Binary Options are so
attractive to me. Apart from the Risk Management aspect, I am
considering it from a micro scalping or “day- or minutes- trading
or scalping” perspective.
With a “micro scalping” scenario, where the "binary outcome"
can occur in as little as 30 seconds latency, or as long as 1 month.
In 30 seconds I could make X% of my wager. DONE DEAL.
That is “in the noise level” of markets perhaps, with a very low
signal to noise ratio. But perhaps with 2 minutes, 3 or 5 minutes
durations, there is a more favorable S/N ratio, or probability
that a Signal predicts the outcome. Or 30 minutes, etc…
Just how “deep” or “accurate” is your technical ability to predict Price ?
Do you have predictive measurements on the timescales or
latencies which you propose to trade ??
So, let’s be reasonable. But with a 70% payout, I can wager $100
( which I am not worried about, since I “know” the outcome will
be in my favor, hypothetically Ha-Ha! ) and make $70 if the Price is
at least *1/10 PIP" in my favor on expiration. In this "digital or binary"
world, 1/10 PIP can be worth a huge amount. But in the "analog"
world of Forex, in order for me to make $70 on 1/10th PIP, I would
have to expose myself to a very large downside Risk, in order
to have the upside gain potential. That is another way of stating
the value of an Option and showing its Risk Management properties.
So, micro-scalping can be “very profitable” BUT only assuming that
you have high WIN rates, even in markets which “are not moving
or are only ‘in chop’ as we say”… And that may require some
"automated assistance" in execution…
So one key factor I haven’t discussed is “how fast” the decision can
be made at just the right moment, so some automation is required, not
just for indicators, but for responding to indicators at just
the right instant…
Everyone knows that Traders must “time the market” and choose the
right moments to enter. But the casual non-technical investor is advised
never to try to time the market, since she lacks the ability to do so.