Volatility Can Be a Good Thing (with Limited Risk)

Volatility Can Be a Good Thing (with Limited Risk)

If you’re on the wrong side of a volatile move and don’t have limited risk, it can be heart-racing, sweaty-palm, paralyzing scary. But if you can stay calm, you’re no longer part of the stampeding herd. You’re more like the cowboy: you may move with the herd, but you’re not thinking the way they are.

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Successful traders know that emotional management—the ability to control fear and greed, is a key to consistent profits. Nadex binary options and spreads, because of their design, can bolster your emotional toughness.

When major events happen, especially catastrophes, it can test investors’ resilience and send some of them into a panic of buying and selling. Traders have the same human emotions as anyone. Like office managers, bus drivers, or yoga teachers, they can have trouble focusing during a crisis.  

Those same times can be when volatility presents great opportunities, if you can stay focused.

For example, when the UK public voted in a referendum in June 2016 to leave the European Union, it came as a shock to many, even to some who voted Leave. Brexit marked a historic cultural and political shift. And it sent the markets into one tizzy after another, because nobody was sure what it might mean for the economy. 

Markets are notorious for not always responding to news the way most people expect them to. They may greet positive economic reports by selling off. At other times, they may rally for no clear reason, leaving analysts scratching their heads.

​The market’s emotionality can be your secret weapon

The good side of risk is the opportunity that comes with it. Binary options offer realistic and daily opportunities to risk $20 to make $80. In volatile markets, the kind of price action that moves the binary from 20 to 80 happens more quickly and more often.

And what about the downside? With binary options, you know precisely what it is, before you place the trade. In the above example, your maximum possible loss would be the $20 you paid up front, plus the $1 fee to enter the trade. If the option expires at zero, we won’t charge you a settlement fee. You can’t lose more.

The key is being calm enough to take advantage of the opportunities the market presents you. Nadex facilitates that calm by giving you an edge.

What is that edge? Two words. And they aren’t “binary options.” Those are just tools. The edge is limited risk.  

Limited Risk: The Nadex Trader’s Edge

It’s an old truism that trading is a risky business. But it’s more accurate to say that risk is our business. We might think we’re buying and selling gold or crude oil or stocks or soybeans, but in fact, what we’re buying and selling in every trade is risk.

We trade the risk of uncertainty for time to be proven right. When we buy or sell a binary option two hours before expiration, we’re taking on uncertainty. We don’t know where the price will be two hours from now.

And what we get in return for taking on that uncertainty is time. We’re buying time for the market to move towards our profit zone and prove us right. 

Excerpt from the upcoming ebook, Trading Volatility with Binary Options

This information has been prepared by Nadex, a trading name of North American Derivatives Exchange, Inc., prepared by independent third parties contracted by Nadex or reproduced form third party news agencies. In addition to the disclaimer below, the material on this page does not contain an offer of, or solicitation for, a transaction in any financial instrument. Nadex accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication.