Binary Options Can Help Avoid Order Problems In Volatile Markets

By Author: binaryoptionsnow
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The limited risk nature of trading binary options helps make purchasing them an especially interesting option trading strategy over very volatile trading periods.

Basically, using a long binary option trading strategy allows a trader to remain involved in a fast market without being subject to especially frustrating trading problems like substantial stop loss order slippage and briefly triggered stop loss orders after which the market subsequently reverses.

Using a binary option trading strategy in such a situation usually involves purchasing binary options that expire soon after the volatile period has concluded. Employing this sort of strategy can help a stock, commodity or forex trader manage such potentially problematic markets in a way that limits their risk to the premium paid for the binary option.

Non Farm Payrolls Binary Option Trading Strategy Example

For example, when a major economic number like U.S. Non-Farm Payrolls comes out, the forex market can go haywire for a short period of time while the news is discounted into the various major exchange rates.

These sharp price swings ...
... can result in frustrating forex trading challenges like barely triggered stop loss orders from which the market promptly recovers. Such volatility can also result in substantial slippage on stop loss orders that can be a painful surprise to a trader expecting to be filled at their order level.

A savvy trader might use a forex option trading strategy that involves purchasing a binary option straddle. This is a two legged option trading strategy in which both a binary call option and a binary put option with the same strike price are purchased on the underlying exchange rate.

Thus, if the Non-Farm Payrolls result comes out substantially different from the market consensus and the forex market reacts strongly, the trader will likely be able to profit on the leg of the binary options strategy that has gone in the money.

Furthermore, if the volatile market then reverses and returns to previous levels, as is sometimes the case, then the trader may be able to benefit from profits on the other leg of the binary option trading strategy.

Beware of Higher Premiums and Lower Payouts

It is perhaps worth mentioning that some online binary option broker websites are probably wary of writing binary options over such volatile trading periods due to the greater risk involved.

As a result, they may reduce payouts on binary options accordingly, and they might also mark up the premium cost of purchasing such riskier binary options. This effect can be even more notable with especially short term binary options with tenors that include a major risk event that is widely expected to create volatility in the underlying market.

Nevertheless, traders who have access to a decent binary option brokerage service that offers competitive pricing can usually still take advantage of the useful limited risk characteristic of binary options to help them manage risk appropriately while still being able to participate in especially fast markets.

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