Digital options trading strategy and risk management
You choose between two possible outcomes for each digital trade: You can, by trading a combination of different digital s together as part of your digital trading system, take a view on market volatility in either scenario without necessarily speculating on which direction the market will move.
Your digital trading system could also involve trading digital s as a short-term hedging strategy for protection on other regular CFD positions that you may hold.
With CMC Markets digital trading is a limited-risk product, meaning that you always know in advance how much you stand to win or lose on each trade.
For this reason it's not necessary to incorporate risk management orders such as regular, trailing or guaranteed stop losses into your digital options trading system. This doesn't mean you shouldn't include some kind of risk analysis in your digital trading system. You should consider the fundamental and technical factors affecting the instrument you're trading as part of the decision-making process you follow before entering a digital position, and factor any relevant risks into your process and strategy.
You can build a technical analysis element into your digital options trading system to help you identify trading opportunities and trade entry points. The underlying FTSE index is trading within a steady range. There are no economic data releases scheduled for the remainder of the day, and you think there is a good chance the FTSE will close within a point range of its current level. The underlying market level is The UK settles at Remember, your profit or loss is based on the difference between your entry price and the digital expiry price or 0.
You buy at 9 , as you believe the price will touch 1. Your stop is triggered and your position is closed at a loss. However, the market has touched your digital strike level and your One Touch digital position closes at as a result. Remember, your profit or loss on digital trades is based on the difference between your entry price and the digital expiry price or 0.
Calculating your risk in binary options is actually very easy. So your first step is to identify and sign up with a broker that will allow you to place trades within the confines of your acceptable risk appetite.
Binary options brokers have made this very easy, because the moment a trader pushes the button to purchase a contract, the trader is immediately shown the cost of purchasing that contract. He cannot lose more than what he spent purchasing the binary options contract, so for every contract purchased, the amount at risk is known and the potential reward is also known.
This enables the trader to do what is necessary in order to keep his risk within acceptable limits. In binary options, payouts are made up of your invested capital and your profit. However, this is for a single trade. The essence of all this is to protect your account from the devastating effects of losses in a single trade where too much capital was invested.