The newest option which has been introduced with binary option trading is closing the trade before the expiration time. The options means that a certain trade for a given asset may be closed earlier before the previously predetermined time frame expire. Recent trends show that the popularity of this feature is steadily growing and that the brokers have started allowing them while the traders are using this possibility as well. These features allow more flexibility for the traders and have introduced new options within strategies as well.
This new option has introduced certain changes within the binary option traders. There are new questions which need to be asked and certain issues to be assessed. One should ask him or herself when to close an account and why to do so. You also need to assess which advantages or disadvantages this option can hold in order to use it correctly and, more important, successfully. Now we shall take a look at certain strategies which may prove to be useful in helping you decide when to use the newly acquired early closing option.
Uses of The Option Buyback Function
The early trade closure option is actually referred to as the “option buyback” or “early closure” with binary option traders. Generally speaking, this option allows you to close or end a trade early before its predetermined expiration date. This option is can usually be used in order to ensure your positive outcome when you are “in the money” and do not want to risk to market shifting back on you. One can also use it as a method of cutting one’s losses when you determine that the trade is not going the way you have planned. That way you can end the trade before its time before it reaches an undesirable outcome.
Using The Early Closure Option to Capture Profits
Some more experienced traders may have experienced the occurrence of certain events which have resulted in losses. These events are unforeseen phenomenon which occur on the market and cannot be stopped by any of the traders nor brokers. No one can actually explain how it happens and more importantly when is it going to happen. There are many reasons and factors which affect the market like this and in most cases ends up badly for the trader. One such example of an event was the credit card crisis.
Some examples of these events are natural disasters which occur out of mere reasons or even a decision of a certain bank to change their interest rates. When such an event occurs a shift in the market will always appear often prompting unpredictable changes. If it happens, and it often does, that the changes on the market caused by these events start to shift the market against your trade, you will helplessly watch at the screen while your trade falls off or to put it in more technical words, ends up out of the money. Many of the traders have experienced such an event and there was nothing one could do to cut his or hers losses or stop the disaster from happening.
With the introduction of the early closing option one can protect him or herself from these unexpected occurrences. The often frustrating and also costly events can now be stopped before they affect your trades. The early close option will help you cut your losses or end a trade before the event affects your trade helping you to end up in the money. You can close your trades in a profitable position before the time expires and before the market affects your trade and en up in a favorable position in the end.
Using the Early Closure Function to Prevent Losses
Another beneficial function of early closure options is that you can prevent your losses before they occur. When you are sure that the trade is not going well and that the market has shifted it in an opposite direction compared to your assumption you can click this option in order to prevent further losses. You can use this option when you are completely sure that the trade is unlikely to turn to a positive outcome. For example, if your trade starts going the wrong way, resulting in an out of the money final, you can reduce the amount of your losses which may rise to 80% or higher by clicking on this early closure option and cut your losses at an acceptable 30% or 45%. Of course the percentages vary from one broker to the other and you will need to check out the market conditions for each broker individually before applying this option.
Rules to Remember When Using an Early Closure Option
There are certain rules which follow the early closure option. This option is not to be taken lightly and cannot be used arbitrarily in order to stop each and every one of your options, helping you to end up in the money. You must think of the broker or the market maker who is on the other side of your trades. If each and every trade was to be stopped in a favorable time all of the brokers would end up broke and out of a job. That is why there are certain rules taken into effect in order to ensure that these occurrences do not happen.
- High yield contracts cannot be closed early. These types of trades often promise a payout higher than 250% and if every trader were to stop his or her trade during an in the money position of a high amount, the market will end up being out of balance.
- There are certain time periods when early closures are not permitted. The broker is the one who enables the early closure option possible and also is the one who sets the period when it is available. The closure option is not available during the whole period of the trade but just at a preordered period which the broker sets. It can include a time span before the closure of the option or any different time span while the trade lasts.
- There is a penalty which allows the early closure to happen. This means that traders will not receive the full amount of the money when using the early closure option. A full payout is not an issue when dealing with early closure options.
Early Closures Allow for Increased Trading Flexibility
This is a relatively new option and has proven to be very useful among the majority of traders. The option protects the traders profits and prevents against further or larger losses. When unforeseen events occur during your trade, the early closure option is the best thing to use in order to avoid further losses. The recommended use of this option is when a trade is unlikely to increase in profitability before the contract expires.