If you are new to trading binary options with Nadex, you may have wondered why there are so many different expiration times. Why does Nadex offer five-minute, 20-minute, intraday, daily and weekly binaries?
One new trader asked about this in a trading room. He theorized that it would make more sense to choose the contract with the longest expiration, I.E. let the profitable traders run and stop out the losers.
Question: If the market had been in range trade since 2:00 AM, wouldn’t you come out far more profitable at the end of the day than just trading the contracts with shorter expiration times?
Answer: Even if the market has been ranging since 2:00 AM, nothing that says it will continue in that range. There can be news, market makers and other things that will cause the market to oscillate. It is the movement of the market that makes trading exciting.
Taking time to analyze the theories, all binary options have the same expiration value at expiration, the same trading range between 0 to 100, whether they have a five-minute or weekly expiration. All these binaries with different duration’s work the same, except contracts with more time until expiration move slower than those with less time. Letting the profitable trades run and stopping out the losing trades sounds a lot easier than it is. Contracts move at different speeds.
Another thing to consider is the amount of trades a trader could make by trading more often. If you have money tied up in one weekly trade, it is not available for several 5-minute, 20-minute or intraday trades. Trading the shorter-term trades frees up your capital providing more opportunities for trades. The counter with shorter duration means the trade edge that the underlying is above or below the strike is less where the outcome can change more quickly compared to longer duration’s. I
When binary trading it is important to protect your profits and cut your losses. When initiating your trade, you know exactly your risk and reward before the trade is placed. You can exit at any time up until expiration, as long as there is an opposing position available.
Remember when holding a binary position until expiration, you are risking all of your initial cost. Even if your position is a little out of the money, there is no partial settlement payout as the settlement is all or nothing.Do not let greed get in your way. It is better to lose a couple of dollars than hold the trade until you cannot exit. I have a favorite saying that says, “You would rather wish you had something you don’t, than have something you wish you didn’t.”
Futures, options and swaps trading involve risk and may not be appropriate for all investors. Past performance is not necessarily indicative of future results.