Hedging means to insure against a possible negative yield of your trades and thus, reducing their impact. Binary option hedging strategies are strategies, which are designed to reduce the risks of investment, by using put options, call options, future contracts or short-selling methods.
Hedging is all about implementing ‘put’ or ‘call’ option if the price of an asset increases or decreases before the expiry time of an investment contract.
For instance, if the price of an asset has gone beyond the predicted value, a trader can apply for call option in order to secure the profit. In this way, a trader can remain in the trade or sell it to earn extra profit.
There are two types of binary options Hedging Strategies:
- Full hedging: This means selling all the shares and bringing the profits immediately.
- Partial hedging: This means selling some and keeping the rest of shares, thus reducing the risk up-to the portion of shares sold. If the trader’s prediction turns to be correct, he would earn profit without involving any risk.
A thoroughly developed binary option hedging strategy is necessary to cover any losses and expense decreases. Binary option hedging strategy underlines a plan to lock-in profits earned from stock trading. It involves the use of complicated financial instruments. Binary option hedging strategy has a cost which could not be avoided. Therefore, a binary investor should have consider that its cost can sometimes be greater than the profits. Just like any other strategy, the hedging strategy can sometimes fail, this is why it is very important for binary option traders to know that market experience and knowledge would be their best advantage in binary options trading.
The information in this analysis is collected from different sources and should serve for informative purposes only. The author shall not be held responsible for the validity of the presented information. No part of this analysis recommends the purchase or sale of a currency pair or any other financial instrument.