Hedging of Funds through Binary Options

Hedging of Funds through Binary Options

Submitted by adil on Tue, 11/27/2012 - 04:11

Binary options provide you with a huge advantage of being traded in the various financial markets. Willing buyers as well as sellers of the binary options existing in various markets indulge in binary options trading so as to make profits. Binary options provide high returns and this is what all traders aim for. In case of conventional trading options, the profits are directly related to the degree of the price change and hence it cannot be predetermined. However, this is not the case with the binary options, as the profits here are not depending on degree of change in price but only on the direction of the movement of price. Thus, even when the price moves by a dollar or a cent, the profit is going to be a predetermined payout, which can be as high as 60-70%.

These options can also be applied to the commodity market. In case of commodity markets there are several parties involved including dealers, trader, sellers, producers as well as manufacturers. This leads to a big turnover in the market as each of these parties fight to make profits. The commodities may include anything including gold, silver, coffee, wheat, etc.

A major area where the binary option is applied highly includes the hedging of funds. Hedging funds with the help of other options are far risky then hedging them with the binary options. The traders here adopt the strategy to buy platforms as per the situation in the market. In case there is a prediction of the upward trend, then the trader buys a binary call option, while in case the anticipation is for a downward trend then he will buy a binary put option. However, for hedging the positions a trader will buy a call and a put option for the same asset so as to secure his position. Irrespective of whether the price falls or increases, he remains in the safe zone as both of these options will bring money to him.