A New Approach to Your Trading in 2017

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A New Approach to Your Trading in 2017

Author: James Ramelli / AlphShark.com

With markets touching new all-time highs into the end of the year traders are asking themselves what their approach to trading in 2017 should be. Regardless of your market view it is clear that in the New Year risk management is going to be the most important factor of your trading plan. The moves that we have seen in markets since the election have been large enough in some cases to make the potential for outsized losses a serious risk. Fortunately retail traders now have access to derivatives markets in a way they never have before and these derivatives products will allow them to manage their risk in a way they could not have before. Nadex binary options and spreads now give a trader the ability to manage that risk on an intraday basis. For those expecting volatility in the New Year, or a continuation of the upside grind, protecting your account is essential.

Most traders who lack an understanding of derivatives products have a pre-conceived notion of the level of risk a trader needs to take on. Most traders think that in general, derivatives are overly risky and can lead to massive losses. For traders who do not understand proper risk management this is true, but the same thing could be said about any of the underlying markets these derivatives are tied to. The notion that derivatives markets are any more risky than the underlying markets is actually a huge misconception. If used properly derivatives can give a trader the ability to lower their overall risk in apposition while increasing their maximum reward or return on risk. Typically derivatives like equity or index options are useful for traders that want to take medium to longer term speculative views on the market but they aren’t very practical for the intraday trader. This is where binary options and Nadex spreads enter the picture. These contracts give a day trader the protection that options afford with all of the responsiveness of a short dated instrument. We will discuss a few reasons why this is going to be incredibly important through the first part of 2017.

  1. Broader volatility is low, for now: With the CBOE Volatility Index (VIX) trading at lows for the year trader who would normally look for large intraday moves are probably not finding too much opportunity. Traders using weekly equity or index option won’t see the options respond well to small moves in the underlying. Nadex spreads and binary options provide a trader with intraday expirations and this means that these options can see a significant move on a small move in the underlying market. This makes them an invaluable tool for the day trader that wants to capitalize on smaller moves in the underlying market while taking advantage of the risk management capabilities of derivatives.
  2. Volatility in Other Markets Creates Opportunity: While volatility in equity markets has been rather low into the end of the year the same cannot be said for currency markets. Volatility in currencies has actually increased since the election and a trader who is undercapitalized might not be able to participate in these markets. Nadex binary options and spreads allow a trader to speculate in these markets on a daily or weekly basis with much less capital and a much higher degree of risk control than they would have in the underlying. Traders need to seek out opportunities and while equity markets are “boring” a trader can take advantage of the guaranteed risk and reward of binary options to speculate in the currency markets, which have been moving much more.
  3. Binary Options and Spreads Offer Protection in Catalysts: As we enter the New Year there is likely to be a large number of catalysts that can lead to outsized moves in the market. With a new president we can expect large shifts in policy and traders who are not mindful of their risk and reward setups might see larger than expected losses. When trading binary options or spreads a trader will never have to worry about this. All risk and reward in these products is fixed at the onset of the trade and a trader will never see an outsized loss on a large market spike or selloff. This works well for traders with smaller accounts who still want to be active intraday traders.

With what is sure to be an interesting year in the markets, traders need to prepare themselves to use all of the tools they have at their disposal. Approaching the New Year without some kind of derivatives aspect to your trading plan limits your risk management capabilities and can keep you from participating in markets where opportunities are more abundant. Traders will need to be nimble in the New Year and adding binary options and Nadex spreads to your arsenal is a great way to do that. Even if volatility expands at some point during the year the superior risk management capabilities and fixed risk and reward setups that these products offer are going to help you trade through the next year with a peace of mind that some traders do not have.

Nadex Risk Disclaimer

Trading on Nadex involves risk, which may result in financial loss, and may not be appropriate for everyone.  Any trading decisions that you may make are solely your responsibility.  The information presented in this webinar is for informational and educational purposes only.  The contents of this webinar are not an offer, or a solicitation of an offer, to buy or sell any particular financial instrument offered on Nadex.  Past performance is not indicative of future results.