Hi all,
I wanted to hedge my regular forex position using Nadex binaries. I’m trading mini-forex where one pip move equals one dollar but I noticed it does not work that way with binaries. However I know that option decay will kick in at some point and make the option move one dollar to a pip and from there it will increase. My question: Is there a way to know upfront when this is going to happen in time so I can hedge against it?
Thanks
If you’re looking for a dollar to dollar relationship, spreads are a better hedge vehicle since they’ll move dollar for dollar for the most part.
Binaries are the delta of a call option, so the distance of the underlying to the strike along with time remaining all factor into the price. So it really depends on any of those at any given time when the price will go $1 a ticket and then it’s a matter of how long will it stay at that rate. How are you currently using them as a hedge? OTM/ATM/ITM?
I would like to use them ATM.
Are you saying that the binary can go one dollar per pip and then increase and decrease based on certain factors(greeks)? Because I thought time decay will make the option increase dollar to pip so it goes to dollar per pip and increase but does not come back.
I don’t like spreads, I find them to expensive. Especially for gbp/jpy I have seen them in the past go for 40 to 50 dollar, that is insane.
You cannot hedge a forex position using binaries. Ecpsecially not an atm binary. This is a bad strategy and won’t work. A binary us the delta if a call option it is not like a spread. Again this will let work well at all many have tried and seen it does not work. Saving you some pain use spreads not binaries to hedge. No factor will make binary movement move like the underlying.
Spreads are not more expensive than binaries. You do not properly understand either of you believe this and need to dig much deeper.
That is too bad. But is it not so that if you would take out the factor of volatility you can scale in and out using micro lots, and thus forcing both to move alongside, if proper managed through time
Volatility of the market is not impacted by the size of your trade. The volatility of your pnl may be impacted by the size of your trade. If you want to hedge use spreads to reduce risk and volatility its cheaper and works much better than the first idea posted about hedging with binaries and much much more effective.