Traders in the U.S. who depend on working an outside job as their primary source of income can have a difficult time trading the U.S. markets since those markets are open during normal working hours. Foreign markets, which open during different hours, may present a solution.
However, some foreign markets such as the European markets are still not convenient to trade because they open around 2:00 a.m. EST when most traders in the U.S. are asleep.
On the other hand, Asian markets, including the Nikkei in Tokyo, open up at 8:00 p.m. EST, which allows the opportunity for employed traders to have a working man’s market to trade.
Binary options, available through a CFTC-regulated exchange here in the U.S., offer a very simple way to trade the overseas markets. Binaries for foreign markets are quoted in U.S. dollar terms and do not require additional data feeds or costs to trade.
Let’s look at an example of a binary trade on the Nikkei. The time is around 8:15 p.m. EST just a few minutes into the Tokyo session, and the Japan 225 futures are looking weak. Shown on the bottom portion of the chart is the MACD (Moving Average Convergence / Divergence) indicator that is about to confirm a sell signal. Traders may use this or a variety of other indicators to help develop a market view.
Once traders have a market view, they would look for a strike near their desired target. On the right of the chart is a list of current binary options. These options expire two hours from the open at 10:00 p.m. EST and have a settlement value of $100 per contract.
Buyers of these binaries want price to settle above the strike while risking the purchase amount to earn the difference between the buy price and the $100 settlement.
Meanwhile, sellers of these options look for the market to settle below the strike while potentially earning the sell amount while risking the difference between the sell price and the $100 value.
There are many ways to use options individually or in combination in order to fit your own market view. You choose an expiration and price strike, and decide whether to buy or sell depending on whether you expect the market to settle above or below that strike.
Let’s say you are bearish. With the Nikkei currently trading at 19935, one trade possibility would be to sell the 19920 option, which is just 15 points below the current market, for $57.75, earning that amount if this trade is successful while risking $42.25. This trade would profit on a settlement below 19920.
Another possible view if you were bearish would be to look for this market will go all the way down to the prior day’s low and settle there. In that case, you could sell the 19880 option, risking $16.25 to earn $83.75, which would profit on a market close below the 19880 strike.
On the other hand, if you were bullish, you could look for strikes above the current price. One choice would be to buy the 19960 option for $37.50, risking that amount to potentially earn $62.50. This trade would profit on a settlement above the strike of 19960.
These trades are not intended as recommendations, just examples of the process of trading binaries on foreign markets. Even traders who are new to foreign markets and working another full-time job should be able to find an instrument such as the Nikkei to trade when they are off work.
Whichever direction you take with binaries, the trade will be limited in risk, and you know how much you are risking and how much you are earning at the time you enter the trade.
Note: Exchange fees not included in calculations.