Binary options can basically be traded in several trading types. There are the classic call / put options, touch options and the range options. A somewhat newer and popular type of trading is pairs trading. "Pairs" is the English term for couples. So far there are only a few brokers that offer pairs trading, but the trend for pair options has already been set.
When pair trading, two values are compared and the trader has to decide which one Value will perform better or worse. The broker Banc De Binary, for example, offers trading in pairs such as gold against silver, oil against gold or on pairs of shares.
How does pairs trading work?
The broker usually provides the trader before the choice. In the case of Banc De Binary, the trader has to decide which value will perform better. Is it gold or silver? Both raw materials correlate very strongly, so the decision is not that easy. In the end, regardless of the decision, the broker pays the same return. This is called a fixed return.
Other brokers, such as StockPair, either pay a fixed return like Banc De Binary, but also allow a variable payout, which depends on which value is currently performing worse.
Example of variable returns:
If the BMW share currently tends to perform worse than the Daimler share, a return of 154% can be achieved, provided that the BMW share is used will develop better than Daimler within a fixed term. However, if you rely on Daimler shares, only a return of 15% is paid out. The principle of a variable return is comparable to a quota.
Example of a fixed return:
With a fixed return, the customer receives the same amount, regardless of how the shares are currently developing. The chances are therefore evenly distributed, but the return is always less than 100%.
How do you analyze pairs?
Before deciding which of the two values will perform better, you should find out how the two values basically developed. For this you can look at the course history and use the technical analysis. In most cases, however, it is not immediately apparent which of the two values could develop better than the other in the short term.
On the one hand, the variable return could therefore provide information about which of the values tends to perform better, On the other hand, one should determine the correlation, especially with raw materials. This can be found out via various financial information portals.
Since silver correlates very strongly with the gold price, the differences in performance are not very great. Nevertheless, a benchmark analysis can be used, for example, to determine when the gold price is developing better than the silver price.
A benchmark analysis is a comparison of two price trends. The attached example for gold and silver clearly shows that gold (black) performs better than silver (green) when prices rise. Silver, on the other hand, falls earlier and faster than gold. The knowledge could be used, for example, in an upward trend and opt for gold to perform better than silver.
Another option would be to analyze the price ratio of both values. The ratio represents the ratio of the two prices as a course that applies to itself. This ratio or the new price is displayed by the brokers instead of the price for the individual value in the chart.
The ratio can then also be used using the Market technology can be analyzed to identify certain trends. Above all, watch out for lows and highs as they can be seen as signals for a reversal of performance. The example clearly shows the low and the subsequent upward trend. Subsequent to the low, silver either started to perform better or gold worse.
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Pairs trading is a very interesting type of trading and is also fun with a detailed analysis. You should pay particular attention to the correlations of the two values and do not ignore the variable return.
A benchmark analysis can be used to draw conclusions about the behavior of the prices. In which market phases does one value perform better than the other? Subsequently, the analysis of the course ratio would be recommended, because this can provide signals for upcoming changes.