Binary Options Hedging - Nadex & Markets World Platforms

Hey guys, welcome back to the channel, and today we're going to talk about hedging binary options. So hedging, guys, is a way to minimize risk of loss. This prevents us from losing our total investment, and in binary options, one way we do this is by hedging, um, currency pairs. And we find that some currency pairs trade in correlation to one another. Some move in the same direction, whereas some may move in opposite directions. One example case of a currency pair that moves in the same direction is the euro and the British pound. When one starts to get a spike and move upward, they seem to move in like patterns. So for example, if we were going to hedge a currency pair like the euro and pound, we would use a class of options that are basically in reverse because they're going to move the same direction. So we will want to use a call and a put option. So for instance, if we had the euro that was moving in an upward direction and we expected that the pound was going to follow suit, we would buy a call for the euro, but we will buy a put option for the pound. And the reason that is, is because we want to hedge it. We want to make money on a downward move of the pound. Uh, we know that they wouldn't be able to both, uh, under normal circumstances move in the same direction. You know, although there has been cases where, uh, you know, I've still lost on, uh, you know, hedging as well. I've lost on both contracts. But most of the time what will happen is one of the— you will win on one pair and you'll lose on the other when you use a call and put option on binary options that move in the same direction. You know, like this example of the euro and the pound. But for currency pairs that we wish to hedge that actually move in opposite directions, and an example of that would be a currency pair like the euro and Swiss franc, you would wanna buy the same class of option or the same. So in other words, if the euro was going up, Normally the Swiss franc will start to move down, but in order to hedge that, we will want to buy options in the same direction. So you want to either buy a put option for both the euro and the franc, or you want to buy a call option for both the euro and the franc. So you see what's going on when they move in opposite directions. You're buying the same type of option when they move in the same direction. You're buying different classes of options, okay? So let's give you another example of what that would look like and why it's important to understand hedging and how it can help you in minimizing your loss and how even in some cases you could possibly make money hedging because in some cases, just like in some cases you can lose on both, you can win on, you can win on, but those are gonna probably be cases more rare than, um, you know, you know, that's going to happen less than normal. But again, this is a strategy to minimize loss. If you see that your contract you have, maybe moving in the direction, uh, that you're trying to protect your position, hedging is a good means to, uh, or strategy to use. Um, Another way you can make money on options or hedging of options is that once you've pretty much got it set up to where you can minimize your, your risk of loss on hedging, as the options are running to their expiration time, you can sometimes come in in the last moment once you kind of got the move of the market and then just come back around and and buy that option that, uh, in the direction that the market's moving in. Uh, you know, for example, you can see an example of a hedge happening right now on the, on the euro and the pound. Now, as discussed earlier, we know they tend to move in the same direction. Um, so, um, we did— what we would have to have in that case is a call option and a put option. Right? We couldn't have a call option because then in that case they would all be moving in the same direction, and they're gonna basically do that anyway. In most cases, they're gonna follow each other. So, uh, that's why you want one to be a put to protect the downside of the option. And one way you do that is we'll use our standard indicators. If you know, as I've seen on some videos, like with the euro, if you feel that the euro is moving in an upward direction, you will buy a call for the euro. But for the, for the British pound, you would have to buy a put option, even though you know that the British pound more than likely will move in an up direction along with the euro. You would have to buy that downside in case the market moves down against you. Uh, also what's good about doing this on the Nadex system is You know, because you're able to sell out of your contract, you know, once you see which direction the market's moving in. If it's really— if your option is moving in a direction you don't like, you can go ahead and sell out if you want and protect that way. Now, as you can see on the euro here, that was a good call. The euro is moving up and we're, you know, up $11 on that contract, you know, or what have you. And but on the pound, on the downside, we're losing tremendously. We are we were lost about $52, but then our loss is being minimized by what we're gaining on the euro side. Now, now that we kind of got the market move, we know that it's the euro that's, you know, moving in that upwards direction. You could, you know, basically swing back around now. It's like, okay, I got the move. You can pick up another euro contract and you can go from that direction with it. This can also be done on the Markets World platform using a very similar strategy. In some cases It will more— it will even work better with the market's role doing it because market's role is basically, um, you know, they're setting like a, a, a stable price, market price, strike price to be above or below. It's not like, uh, so much like the Nadex contracts where you have different strike prices. Uh, you know, you can basically enter both, pretty much both strike prices at the same pretty much at the same level on Marcus World and come back. But, uh, I see Nadex on this because you can still sell out the option once you see the market moving in the direction you don't like. As soon as you see that, you can jump out of this contract, which is something that can't be done in Marcus World. Once you're in, you're in. You got to ride the whole thing out. Only thing you could do then is come around pick up another option contract that the market is moving in and you think it's going to finish. Of course, again, within 8 days you can sell out, which is great. So that's a, that's a quick crash course on how to do, you know, basic hedging strategies to minimize risks and loss. And like I said, guys, in some cases, um, I've actually won on both contracts. That would be ideal if you can get that, but, uh, sometimes that's not what's going to happen. Sometimes you're just going to make a trade and you're gonna be like, oh geez, it's going in the wrong direction, but you might not want to get out of it at that time. And you can pick up the, you know, do a hedge and where you'll be losing on one and winning on the other one. So you know you're gonna be winning on that other contract or one or the other because of the correlation of the currency pair. So if you have any questions about that, please feel sure to leave them in the comment section. If you like information like this, like and subscribe. And until next time, guys, take care.