As your portfolio grows, the number of trades that you notice are success will always be compared to the number of trades that are not.
With a clear understanding of your win-loss percentages and other forms of risk management, a more advanced form of trading can be accessed once you are ready.
Large Binary Options traders often build their own methods of minimizing loss through a variety of different techniques. These techniques can refer to specific formulas (which are available on the trading platforms you choose) or other methods such as Hedging or the Martingale system.
While they are not required in Binary Options trading, many South Africans who use utilize these techniques see high levels of success.
What Hedging is
Hedging refers to a trading process in which you are attempting to minimize your losses by placing both call and put options on an asset and opening each opposite in position to each other.
Since binary options expire at a set date, you are able to place a number of calls and puts on a price within a short amount of time. This reduces your rate of losses, for the chance of success out of all the call/puts you place is higher than if you only made a singular trade.
Setting up Your Hedge
It’s often mixed together with a defensive asset, or an asset that does not have as much of a volatile variance of price. It is reliant on a system which creates a supporting price, and a resisting change, since this system does not often fail it gives traders over a 90% success rate if used correctly.
Paired with the defensive asset, the chance that your hedging will lose value drops as the latter’s price stability supports the stagnation of the option’s price.
It differs from the Martingale system in terms of its frequency, and rate of success (often being much higher than anything compared with the Martingale).
This form of loss management is a very stable form of reducing your risks significantly, as you virtually could profit from both sides as long as the supports and resistance play in your favor.
A Hedge Trade
To hedge effectively, you must place multiple call and puts on your binary options trade.
An example of a traditional hedging process would be as follows:
Trader A buys a Gold option for 1000 rand, and places a Put on his trade.
He predicts that by 10 a.m. it will rise 100 rand, and then following that put he places a call, stating that it will rise by 11.
This process is repeated, generally three or four times, until the desired outcome is reached. With the ability of three or four trades happening at once, the chance for profit is clearly significantly greater.
As you begin to hedge more often, it will become necessary for you to have as many different investments across as many different assets as you can.
As each trade builds, the risk of your loss will be reduced significantly. Especially with the inclusion of cash in your portfolio, the possibility for risk will not be as probable.
For South Africans trading binary options, hedging should include different assets in different sectors of business. For example, if you own a binary option asset on the popular cryptocurrency Bitcoin then it will be important to own an asset such as a utility company to balance out the price.
While Bitcoin may be subject to dramatic price variance, a utilities company will always be around as long as people need power for their homes.