By Darrell Martin
You may have noticed that there are Binary Options “Brokers” who lock you into your position until expiration. It does not matter which way the market is moving or whether you are winning or losing, you are stuck until the time expires.
Do you want to be stuck in that type of obligation? Would you rather have the opportunity to exit early to protect your profit or cut your losses? Nadex gives you that opportunity. With Nadex, you can remain in the trade until expiration, or you can exit to take an early profit or cut your losses.
All traders want to profit. When trading binary options, the risk and the potential reward are known upfront. You are either agreeing with a statement or you are disagreeing with a statement. At expiration, binary options offer a payout of $100 if you were correct in your statement and $0 if the market turned against you. However, when trading on Nadex and the market is moving out of your favor, you are free to exit.
Let’s look at a couple of examples. Suppose you buy an In The Money (ITM) contract for $75. Your risk is $75 and your potential profit is $25 if held through expiration. You have the immediate trade advantage because the underlying market price is already above the strike. As long as it stays above the strike at expiration, you would profit $25, (fees not included). However, if you see the market is becoming choppy or moving against your position, you are free to exit and protect your profits.
Let’s say you sold an ITM contract for $30. Your risk is $70 and your potential profit is $30. By selling, you are saying that the market will stay below the strike price. As long as the underlying market price stays below the strike through settlement, you will make $30, (fees not included).
Remember that an At The Money (ATM) strike is always priced around $50. Therefore, if the market starts to move against you whether you have bought or sold, when it hits your strike price, you can limit your losses by exiting at that point. Looking again at the example of the contract, which was bought at $75, if the market has moved down to your strike price, your contract will be worth around $50. If you exit then, you limit your losses to about $25 instead of taking the whole loss of $75 at settlement.
The opportunity to exit before expiration allows you the freedom to protect your profits or cut your losses. You will have to provide the discipline to follow through with whatever fits in your trading plan, strategy or system.