While leaders in Davos worry about the global economy, short-term traders see opportunity in the volatility. The key is to limit risk while taking that opportunity. Binary options are uniquely designed to do that.
By Vikram Rangala
Wednesday, January 20, 2016
The headlines were gloomy and some of the titans of finance and government themselves, not to mention Bono, looked worried as they passed through the beefed-up security checkpoints at this year’s World Economic Conference in Davos, Switzerland.
The list of troubles discussed at the Alpine resort was long. The Chinese slowdown, falling oil prices, the Fed’s raising of interest rates, sliding commodity prices, an IMF forecast of a global economic decline, and a possible bear market in the US were all on the agenda.
Other issues worry the investor class as well, like tensions in the Middle East, Europe’s refugee crisis, terrorist attacks, daily mass shootings in the US, accelerating climate change, and the decline of the global middle class as more wealth is concentrated in the hands of a few. That much bad news makes investors very nervous.
However, many of the hedge fund managers also see opportunities in the short term drops and chops in the markets. Some are shorting stock index futures or buying the strong dollar even as they comment on the weakness of global currencies. Others are short-selling commodities and profiting from the price drops. In short, they were talking like investors, but acting like traders.
The average investor fears or misunderstands the concept of short-selling. But traders, unlike investors, work in both directions. So where some investors see falling markets as problems, traders see them as opportunities. But all opportunities involve risk.
SUCCESSFUL TRADING MEANS RISK MANAGEMENT
The key to successful trading, of course, is controlling risk. It’s even more important than being right about the market’s direction. Successful traders know that with good risk management, you only need to be right about 40% of the time to be consistently profitable. That’s right, forty percent. Remember that next time you see a sales pitch for a system or indicator with “80% winning trades.” Don’t fall for it.
Good traders know that losses are part of the business. The key is to keep those losses small. The usual way to protect yourself, using stop-loss orders, has its own risks. Set your stop-loss too far back or cancel it in the middle of a trade, and you can lose more than you can afford. The well-known statistic that most trading accounts go broke within a month results from this failure to manage risk.
But playing it too safe comes with its own risk. Every trader has had the frustrating experience of being stopped out of a trade only to watch the market turn around and prove you right, while you’re stuck on the sidelines. You were right, but you got in too early.
A BETTER WAY TO MANAGE RISK
So you want two things in managing risk:
- Keep your losses small and affordable, so you have money left in your account to trade again and let your profitable trades make up for the losses.
- Avoid getting stopped out, so that if the market turns against you for a little while, you are still in the trade when it moves back in your direction.
Limit your losses without getting stopped out. That’s what every trader wants in managing risk.
What if there was a way to trade that automatically did that for you every time, without a stop loss? You decide your maximum possible loss before you enter the trade. No matter how far the market goes against you, you can never lose more than that amount. What’s more, even if you’re down the maximum amount, you aren’t stopped out. You stay in the trade, able to profit if and when the market turns back in your direction.
That’s what Nadex binary options are designed to do. Nadex is a CFTC-regulated exchange, based in the US, with guaranteed transparency and customer funds in segregated accounts held in major US banks.
With Nadex binary options, you can find profit opportunities in the short-term ups and downs of those volatile, troubled markets they’re talking about in Davos and on CNBC, whether the markets rise or fall or both.
Stock indexes, forex, commodities, economic numbers—trade them all from one account. Whether it’s the Dow or Nasdaq, crude oil or gold, or the euro or yen currency or dozens of other markets, you can trade them with guaranteed limited risk on a regulated US exchange.
In a time of great economic turmoil, Nadex binary options offer a way to trade the markets without taking on all the risks of those markets.
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