The advantage of derivatives is often in a form that is difficult to achieve with normal financial market products and instruments. We are talking, for example, of a short sale, also known as "short" in Wall Street. A trader shortes a stock if he is betting on a falling price. This procedure is known as short selling for shares.
Unfortunately, it is usually not possible to meet the necessary requirements for a classic short sale. The short sale is only possible for wealthy customers of a broker or a bank. In practice, the shares to be shortened are initially borrowed and sold at the current price. As soon as the prices have dropped, you buy these shares at a lower price on the market and give them back to the borrower. The difference between the first sale and the subsequent purchase then represents the profit of the short seller.
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Derivatives offer more design options
Over time For such speculative gains, people have been content with derivatives such as options, futures - and more recently CFDs. Binary options also belong to the derivatives category. Any product whose value depends on a correct asset, i.e. an underlying, can be described as a derivative. The underlying itself, however, is not traded.
Other advantageous properties of derivatives are besides shorting:
- Trading is possible from a small amount.
- Die Yields are much higher than with a 1: 1 investment.
- Trading does not take place via an exchange, but via a market maker.
- Different structure configurations are possible.
Shortening with put options
In binary options trading, buying a put option means that there is a shortage. The first thing for both rising and falling prices is that they also move in trends. So you can trade a downtrend just as well as an uptrend. The following additional features should be noted:
- Movements downwards can be more dynamic due to panicked sales.
- Put options should be bought near the highs to get quickly "in the money "to come.
Of course, an upward push does not necessarily have to be less dynamic. Especially when a short squeeze occurs (panic-like releases of short positions), upward movements can also quickly come as a surprise.
One way to buy put options is to break out of relevant zones The following chart of the S&P 500 shows some setups from the recent past that would have been very tradable.
We notice that these outbreaks were not only confirmed by the outbreak itself, but the initial weakness of the course was already visible before, namely in the SKS patterns or the two lower highs following a high. One could therefore assume beforehand that a downward breakout would be more likely. In these cases, traders would have had to do nothing but wait for the impending breakout.
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Another option to shorten prices would be the upper one Identify range limits in sideways phases as a buying zone. The lower chart shows the S&P 500 index again. This was in a range for a while. While it is certainly easier to draw this range in retrospect, this is not the case at this point in time. For example, when we first try to reach the upper limit, we cannot even know that it is a strong resistance.
Only the RSI indicator shows us a certain weakness in this case, but this is not a guarantee feature either. It was only when the course drove the resistance for the second time and the same characteristics became visible that it was more likely that the course would turn here. As you can see, a put option would have been very advantageous here.
Put strategies with binary options - trading in 5 steps
Traders can use put strategies for trading, among other things, but especially motivated beginners, who can’t wait to close their first trade, often only reach their destination through detours due to the large amount of information. Those who want to trade binary options and increase their chances of success through targeted strategies will find the most important facts in the following slideshow - the five steps to the first trade clearly and briefly explained:
Binary options strategy - How to win 60 second trades | ToniSignals.com
In summary, the following can be said about shorting with derivatives such as binary options:
- For some traders, shorting is only possible with derivatives.
- Trading falling prices can be more profitable than the other way around - especially if you follow the pure market technique.
- The patterns of weakness in the price are often more clearly recognizable than bottom formation, i.e. emerging strength.
- In the event of outbreaks, retailers can use Put options can be used.
- Trading can also take place in sideways phases.
- Larger downward trends are another option for trading put options.
In general and Ga In many cases, trading in falling directions is more suitable for somewhat experienced traders. Nevertheless, even beginners can benefit from the dynamic movements and clear setups.
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