By Darrell Martin
When another country has a holiday and you are trading Forex Binary Options, you can be a step ahead of other traders. By being aware of the upcoming holiday, you can prepare for what might affect the respective markets.
For example, The European Central Bank takes a holiday every May 1 for Labour Day. However, this year, the holiday falls on a Sunday, but my point is that there are known holidays that affect the markets. Japan will observe a National holiday, Shōwa Day, this Friday, April 29, causing its markets to be closed and have slightly different weekly settlement dates. Japan has another National holiday, the Constitution Memorial Day, on May 3. This is important information to be aware of, information that can put you a step ahead in trading.
If it is a bank holiday, it will most likely result in lower volatility with inflated implied volatility (IV), which would give some great potential butterfly setups.
You may remember that in trading Nadex binaries, the butterfly is a strategy where you place two trades simultaneously on the same binary option. You buy the lower and sell the upper, with the goal of having settlement take place in between your strike prices for maximum profit.
If implied volatility is low, then just a small movement could be profitable, allowing for cheap strangles. A strangle strategy is the opposite of a butterfly. It is used when you believe there is going to be movement, but you are not sure which way the market is going to move. Using Out of The Money (OTM) binary contracts, buy an upper contract and sell a lower contract making up both sides of your trade. With a strangle, you expect one side to lose and must take that into account when setting take profits in order to cover for any amount lost.
Most times other traders are not aware of the holidays in other countries. This gives you two ways, butterflies and strangles, to take advantage of implied volatility being out of whack. While other traders are shaking their heads, wondering what is going on with their charts, you can be placing butterfly or strangle trades. You will be a step ahead just by being informed of holidays around the world that affect the markets you trade.