It depends not only on determining the correct direction of price movement, but also on the choice of its expiration time. A what is expiration binary option?
Under expiration refers to the validity period of an option, at the end of which or during which (depending on the type of option) its main condition must be met. At the end of this period, the broker will check whether the current price of the instrument meets the agreed conditions. If the trader correctly set the direction of the transaction, taking into account its expiration time, then he will receive the percentage of profit specified for this option. If the conditions are not met, then the amount of loss will be equal to the amount initial cost option.
Brokers offer their clients different kinds, when working with which you can use different expiration periods: from ultra-short, lasting from 60 seconds, to long-term, lasting a month or more. Right choice the timing will affect the profitability and riskiness of trading.
Novice traders do not realize the importance of choosing the right options expiration and often fail. To minimize these failures, you need to learn to understand the market. Often, before concluding a trade, a trader focuses only on the latest data, losing sight of the timing and other factors that may affect the price of an asset. By wisely combining market analysis and timing a deal, you can achieve good results.
Option expiration dates.
Depending on your trading style, select the most optimal option expiration date (duration):
- - if trading is carried out according to and is focused on long term investment, then the choice of the option expiration date is obvious: it will be determined by the event on which the outcome of the option depends (for example, the completion foreign exchange intervention, political elections, etc.);
- - medium-term trading carried out for periods from one week to a month. If a trader uses technical analysis to predict prices, rather than certain ones, then a neutral expiration date should be chosen - 2-3 weeks, this is the average time for processing a transaction in the medium term;
- - if preference is given to short-term trading, where it is carried out for a period of up to a maximum of one week, then the option expiration period should be selected in several days. It should be taken into account that the transaction must be completed before Friday evening. It is not worth moving it over the weekend, since events may occur between Saturday and Sunday that significantly affect the price;
- - when preference is given, it is recommended to choose an option with an expiration date at the end of the trading day. By the end of the day, the influence of fundamental factors disappears, and stagnation is observed in the market;
- - ultra-short-term trading is the most risky. We are talking about options from one minute to several hours. This type of trading is chosen by those who are attracted by the prospect of quickly receiving income, and a high one at that. But this only looks attractive from the outside. In fact, it is very difficult to predict where the price will be in 1 minute. The usual one does not work on such short time intervals. Fundamental Analysis- especially. In addition, many brokers prohibit trading ultra-short options during the release of important news. Therefore, you basically have to hope for a successful combination of circumstances. If you still decide to try trading with such a period, then the main thing for you should be the price. When it falls, it is logical to enter into bearish trades, and vice versa.
What influences the choice of expiration?
You can also choose the expiration date depending on the type of option. Thus, there are options of European and American type. When trading the second type, the broker provides the opportunity to shorten the period, even if the transaction has already been opened. When might this be useful? Very often, a trader buys an option and even before it is completed, he realizes that he has chosen the wrong direction. If this was an American type of option, then you can close the deal in advance, thereby reducing losses. For the European type of option the possibility early closure not provided.
Some provide another option for insurance in the event of an incorrect conclusion of a contract - this is a delay in the expiration time. This is done by replacing the selected option with another one with a longer validity period. So, if there is very little time left before expiration, and the trader understands that the asset price does not have time to reach its goal for the successful completion of the transaction, then he can extend the expiration period.
The choice of option expiration time is also influenced by the instrument being traded. If trading is carried out with commodities, then it is better to choose a short term for the option, since these instruments are more stable, and therefore it is easier to predict their price in the short term. You can also conclude several transactions over a short period, which will increase your potential profit.
Medium and long periods are most preferable, since exchange rates are often subject to at least slight but unexpected price changes, which in the ultra-short term can negatively affect the completion of the transaction. How longer term expiration, the lower the risks associated with slight price fluctuations. Similarly for the stock market - it is better to set the option expiration period from several hours or more.
Conclusions.
So, based on everything written above, we can conclude that important point in trading efficiency binary options is optimal choice their expiration. Even if you correctly predicted the direction of the price movement, but incorrectly indicated the time frame during which it will reach the specified goal, you will fail.
Therefore, when trading using a long-term strategy, choose the appropriate expiration dates for the option; if your strategy is short-term, then do not try to set terms of more than 1 day. Compliance with the rules for choosing the duration of transactions will be the key to successful work in the options market.
Many traders (including myself at one time) do not understand at all how to calculate the expiration time in trading and what to pay attention to. As a result, trading comes down to guessing, but not to a systematic approach. In this article I will try to fill this gap in your information field.
To begin with, it is worth mentioning that the price moves in waves - along support and resistance levels. And it doesn’t matter at all whether these levels are local, global or even dynamic - the main thing is that these are the zones that indicate the greatest interest for traders.
It’s worth saying right away that if your strategy already has an expiration time specified, then this method will not suit you! This method is only applicable to trading candlestick patterns, trend continuation and reversal patterns, Price patterns Action - to trading methods based on “naked” technical analysis.
The calculation of the expiration time itself is based on the calculation of Bones (Bounce). In trading, this term refers to the time (number of candles) during which the price covered the distance between two support and resistance levels.
As an example, let's take a sideways movement - a price movement limited by a resistance zone at the top and a support zone at the bottom.
We have a certain number of candles during which the price passed from the resistance level to the support level. Accordingly, we need to understand how to set the expiration time.
To do this you need to know the following rules:
- Bones are the number of candles during which the price passed from one level to another.
- Expiration time is half the Bonus, but not less than 3 candles!
Thus, after the first downward movement (10 candles), we get an expiration time of 5 candles for a rollback from the support zone. The expiration time is calculated similarly and after the price moves up - a full movement of 6 candles (Bones), expiration time = half of the Bones, i.e. 3 candles for a rebound from the resistance zone.
There are times when the price moves in a sideways channel or in a trend for a long time. In such situations, you can more accurately calculate the expiration time. To do this, you need to calculate the average value of Bonuses.
For example, taking the same sideways movement, we get the following Bonuses up:
The sum of these Bonuses divided by their number will be the average value. Accordingly, if we divide this average value by 2, we will get a more reliable expiration time. IN in this case the formula will look like this: (6+4+6+15)/4=8 (rounded up), accordingly, the expiration time will be equal to 4 candles (8/2).
The expiration time for a rollback after Bonuses down is calculated in the same way:
In this case, the average Bonus will be 6, and the expiration time will be 3 candles.
It is worth understanding that the downward price movement takes much less time than the upward price movement.
This method is also applicable to trend trading, so it can be used everywhere.
You can watch more details in this video:
Expiration is the point in time when the price of the underlying asset of a binary option is fixed. It is the value of the exchange rate that determines the trader’s win or loss, regardless of the type of contract.
The general definition of this word is often understood to mean the duration of the contract, and the point at the end of the term is called the “cut-off”. This is due to the fact that for “classmates” - vanilla options, unlike binary options, the expiration time is standardized and minimum values drops to a week. Therefore, on the “last day of life” the exchange specifies the specific time for fixing the price level.
The duration of binary options starts at 60 seconds (exotic options contain 30-second intervals). The validity period can be up to a month or more, but in any case, the contract settings include choosing a specific expiration time.
The expiration parameter sometimes determines the type of contract:
- duration up to 5 minutes for “turbo options”;
- the duration is longer than a day for a “long-term” option;
From the point of view of skeptics, expiration makes binary options unpredictable, since it is possible to correctly predict the direction of the trend, and not the time of its development. But limiting a trade by time is a common trading tactic:
- scalpers trading on short periods of time;
- Fundamental traders who predict the reaction time to an upcoming event.
In the first and second cases, the trader closes the transaction independently, after the expiration of a time period, in order to avoid a flat - a sideways price movement within certain price limits. This tactic saves the deposit from “extra” negative results - the absence of a trend leads to frequent triggering of stops - pending orders that limit losses.
The choice of expiration time is determined by strategy, tactics, type of binary option, upcoming economic news, time of day, etc.
Choosing the expiration time of binary options based on the strategy duration criteria
Traders conditionally divide strategies into short-term, medium-term and long term strategies. This gradation determines the “maximum ceiling” of expiration, for example, a day for intraday trading, five minutes for scalping transactions. The latter must necessarily contain the duration of the transaction; in other cases, it is determined empirically as the average period in which the transaction is processed. higher percentage forecasts.
If we break down the trend strategy into tactics, based on the style of entering a position, they can be divided into “breakout” and correctional. In the first case, the trader makes a deal when quotes exceed previous highs/lows, while in the second, after their formation, he waits for a pullback to enter.
The expiration time is selected exactly equal to these intervals. Additionally, the type of binary option and the underlying asset are carefully selected, and the economic calendar is checked for the absence of news during this period.
American binary option expiration time
The “American” type of binary option implies the ability for the trader to change the terms of the contract, including the expiration time. Trading theory advises beginners to strive to close a trade early as soon as a “positive premium” appears. Professionals can extend the expiration time if they are confident in the trend forecast in order to wait for a profitable contract expiration.
Expiration- the moment of option exercise. Conventionally, all trading instruments available to speculators can be divided into groups. If we look at the list of binary options available for purchase, we will notice that there are contracts that should be executed in just a few minutes, others have hours left until completion, but there are also those whose expiration will occur only in a few days.
Majority brokerage companies binary options offer various contracts. For example, below you can see that EUR/USD can be purchased with a wide variety of expiration times.
Some companies even offer contracts of 30 seconds, 60 seconds, and so on. That is, we can purchase a binary option at any time, which must be executed, for example, in 1 minute. As a rule, such trading instruments have a lower percentage return than other options with a higher period until expiration. Binary options 60 seconds are very popular among scalpers.
In the rating of binary options brokers, you can choose a company with optimal conditions for your trading. We recommend that you pay attention to and
The less time remains until the option is exercised, the more difficult it is, as a rule, to predict the outcome of the event. However, scalpers predict moments in the market when, from their point of view, the situation is trading instrument as clear as possible. At such moments, transactions are concluded to purchase short-term binary options, usually within 60 seconds.
Let's look at the example of one of the brokerage companies to see how changing the option execution time affects the profit percentage on transactions:
- 60 seconds - 67%
- 5 minutes - 83%
- 90 minutes - 83%
- 1 day - 70%
- 2 weeks - 65%
In different companies, rates, as well as interest priorities, may be different, so the above example should not be regarded as an unambiguous recommendation.
Each speculator can choose independently with what time options expiration work. Modern trading conditions allow you to trade binary options, the execution time of which ranges from 1 minute to several weeks. In some cases, it is possible to trade instruments whose execution time is generally 30 seconds.
For each time period of the contract there are specific trading systems. Thanks to the systematization of trading, speculators have a real opportunity to make money on the market not randomly, but systematically, which is potentially more stable.