Trading gold with NADEX Binary Options
There are numerous ways to participate in the gold market: ETFs, gold mining stocks, futures, options and even buying gold outright. As each has its own particular advantages/disadvantages, risks/reward profiles.
But what's the famous adage, “Manage Your Risk?”
A must look is a relatively new short term options exchange called the North American Derivatives Exchange or NADEX. NADEX offers short term binary options based on Stock Index futures (both domestic and international), major spot Forex pairs, Commodity futures and even Events like jobless claims and non-farm payrolls.
All the binary contracts on NADEX either expire as a 2 hour intra-day, daily or weekly option that is cash settled, no delivery at either $0 or $100.
Here you can trade the market and pay only for the time premium you need. The benefits of the short dated contracts are that they are more sensitive to the underlying markets compared to longer durations. Of course if the underlying market doesn't move as anticipated within the option's time, it is the risk of the trade as the option may become worthless.
With our gold market bias that range bound to slightly bearish, one consider looking at the many trading choices by selling binary options.
So now when the range bound underlying gold market approaches the top, using binaries you can fine tune your exposure and select the binary strike which best fits our risk profile.
If there is a binary strike available that is at the strike or near, the binary trade price will be approximately 50. At expiration, if the opinion was proven correct, would yield a return of 100 percent, fees not inclusive. A binary seller is short at the trade price 50 and looking for the underlying gold market to finish below the strike at the expiration chosen.
If a binary strike is chosen above the underlying gold market, then you're paying a trade that has an immediate trade advantage. This would be a binary that is ITM where the initial cost is higher proportionally out of the $100 expiration value. Obviously this impacts your expiration return which would be lower but you're paying the immediate trade edge.
If a binary strike chosen is below the underlying gold market, then you're at an immediate disadvantage with the trade where you need the underlying market to sell off and finish below your strike level at expiration. The initial trade cost reflects a much lower portion out of the $100 expiration value as this is an OTM binary. Your lower entry cost obviously impacts your expiration return more favorably but you need help from the underlying market to sell off.
With binaries there are many trading choices of different short term durations. When comparing the alternative, trading volatile markets, such as gold, the price action can be devastating if caught on the wrong side of the market. In a single day's price movement, the gold market has recorded price swings as large as a $100.
Trading volatile markets, there are inherent risks which are obvious and require the protection safeguards. Using stop loss orders can be effective but at times a relatively short yet volatile break in a market can stop someone out only to see the underlying market reversed back to the anticipated trend.
Sometimes getting ‘stopped out' can be good and save you money when the trend reverses but it is very frustrating to get out of a position only to see the market then move your way or a choppy market where your stops are elected repeatedly.
NADEX's binary options offer traders the opportunity to trade short term moves in the market, where the risk and potential return is clearly defined. This allows the trader to weather the potential storm with peace of mind.
The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.