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A Concise Guide to Pair Trading

Pair Trading

Pair trading is a market neutral strategy that enables a trader to profit from virtually any market condition – both trending and non-trending. This strategy involves the simultaneous matching of a long position with a short position in a pair of highly correlated instruments such as two stocks, currencies or commodities. Pair traders monitor the price performance of two historically correlated instruments. When the correlation between the two instruments temporarily weakens – one moves up while the other moves down – a trader shorts the outperforming asset and goes long on the underperforming one, betting that the “spread” between the two would converge over time. In pair trading, profit is realized from the difference in price change between the two instruments, rather than from the direction in which each asset moves. Hence, a profit can be achieved if the long position goes up more than the short, or the short position goes down more than the long.

How to Find Pair Trading Candidates?
• The first step is to identify a pair of instruments whose prices have the propensity to move together with good liquidity. Most binary options brokers offer a variety of pairs to trade in.
• Next, we need to determine the level of correlation between the two assets. Most trading platforms have technical indicators that can automatically plot the degree of correlation on the price charts.
• If the assets’ price movements are indeed correlated, we need to ascertain if the relationship is mean reverting, i.e. when prices diverge, do they revert to the statistical mean. This can be established by calculating the pair’s price ratio, which is defined as the price of one instrument divided by the price of the other. The price ratio should generally come out to be roughly the same number, within a very small range.
• Finally, look for events that trigger weakness in correlation between the two instruments. Examples include Federal Reserve announcements or major geopolitical turmoil.

A Simple Example

Lowe’s Companies, Inc. (NYSE:LOW) and The Home Depot, Inc. (NYSE:HD) operate in the same business segment, and are two highly correlated stocks, as depicted by the following chart. When the price ratio fell to three standard deviations below the statistical mean, we buy Lowe shares at $29.50 and short sell Home Depot t at $38.99. A month later, we exited the position when the ratio returned to mean, by selling Lowe at $26.50 and covering the short position in Home Depot at $31.80. Our Lowe long trade ended with a 10.1% loss, but the Home Depot short yielded an 18.5% gain, resulting in a nice net profit of 8.4% in little over a month’s time.

Guide to Pair Trading

Guide to Pair Trading

Advantages of Pair Trading
Pair trading has several advantages, some of which are listed below.
1. Market Neutral Strategy: The most attractive feature of pair trading is the ability to profit irrespective of the current state of the market. Since this strategy does not depend on market direction, trades can successfully be executed during uptrends, downtrends, or sideways movements.
2. The Risk is Controlled: Because a long position is always simultaneously matched with a short position, a pair trade automatically creates a hedge, which helps in controlling the market risk.
3. Shields from Adverse Directional Movement: In pairs trading, since the second instrument acts as a hedge against the first, directional risk is removed. Profit depends exclusively on the difference in price change between the two instruments.
4. Smaller Drawdowns: Managing drawdowns is an essential part of any profitable trading strategy. Pair strategies generally involve smaller net drawdowns because losses from a losing position are always tempered by gains from the winning position.

Final Thoughts
Successful pair trading requires well-researched strategies, based on accurate historical modelling. Binary options traders should be able to identify truly correlated pairs, locate high-probability trading setups, and use proper position sizing techniques to reap the maximum benefits.

Common Binary Options Complaints

Common Binary Options Complaints

Binary options trading cannot be described as a perfect trading safe haven. Some brokers are often accused of scamming unknowing users or if correctly put, of enticing new traders and later swindling them of their investments. Most of these scam brokers tend to offer mouth watering bonuses on sign up which are simply irresistible. The most common complaints leveled against binary options trading are as described below.

Scam Brokers
Most of the complaints around binary options submitted via online platforms and print media are usually as a result of scam brokers. Some traders have even reported total loss of their investment capital whereas some have reported only partial losses as a result of scam brokers. Scam brokers tend to create trading platforms with a very short life span. After the end of the stipulated operational time frame, the broker pulls down the website, resulting in losses amounting to hundreds of thousands of dollars. Unsuspecting investors are subject to total loss in case a broker winds up their trading activities with an intention to steal the investments. It is always advisable to first check a trading platform’s lifespan and legitimacy before signing up with the broker.

Manipulated Trading Software
A trader may decide to use an automated trading system in order to increase his/her profit margins. An automated trading system acts on behalf of a trader and can be linked with a signal provider to generate trades. These trading systems are usually made up of code and hence they are prone to manipulation. Some brokers have been accused of manipulating their trading software’s code hence they keep generating loosing trades on behalf of their investors. This kind of bias in an automated trading system can lead to disastrous losses on the side of the trader while maximizing returns on the behalf of the broker. Although this can sometimes be a genuine claim, it can sometimes be farfetched especially when the investor does not know how an automated trading system works. If the trading parameters are not correctly specified by an investor, the trading system will make trades based on these parameters.

Identity Theft
Some brokers have been accused of identity theft by requesting “too much” personal information from its traders. Although this complaint is not common with most brokers, this is a genuine reason for concern. A malicious broker can set up a trading platform simply to steal vital information like email addresses, passwords, credit card information among other personal information, which can later be used to compromise a trader’s bank account. The most common complaint drawn on brokers is that they request a lot of information when a trader notifies them about a withdrawal. Some traders have even complained that particular brokers have even requested a picture ID and in extreme cases, their social security numbers.

Complicated Withdrawal Procedures or No Withdrawal At All
This is the most common complaint in binary options trading. Traders usually complain of unwarranted withdrawing procedures as compared to the depositing procedures. Other traders complain of not being able to withdraw at all. They usually complain that when they send a request to withdraw, they don’t receive any communication from the broker and if they do, they receive a bonus which is of the same amount as the withdrawal which makes it hard to complete the withdrawal process.

Last Words
Most of the complaints mentioned above are usually leveled against specific brokers and hence caution should be exercised when choosing a broker. It is always advisable to avoid trading with a blacklisted broker to avoid regrets in the long run.

Financial Concepts

Financial Concepts

Binary options trading is one of the easiest and the most profitable ventures. This is because a trader simply bets on the direction that the price of an asset will move, either up or down, rather than buying the asset in question. Technically, anyone can participate in binary options trading but knowledge of the concepts used in this type of trading is a must in order to enhance trading success. As you explore this trading industry, you will come across a variety of financial concepts so let us look at some of the main ones.

Important Financial Concepts

The main concepts used in binary options trading include:

Expiry time -This is the time at which a trading contract is set to expire. Expiry times usually vary with the asset being traded and a trader’s preference and can be as short as 30 seconds right up to one year.

Stock – This refers to a specific company’s stock which is available for trade on the stock markets and the binary options trading platforms. Examples include Google, Facebook, etc.
Type of asset -This refers to which trading category an asset falls into. The most common types of assets available with most brokers are Indices, commodities, currencies and stocks.

Asset value -This refers to an asset’s underlying price or value at any given time.

Commodities – As listed above, commodities is a type of an asset. It mostly consists of physical items such as gold, oil, sugar, wheat and more. The prices of these items are usually determined by economic factors.

Futures – Refers to contracts of a class of indirect insecurities which are purchased or sold at a later set time.

Boundary or Range Option -This type of trade option allows a trader to specify if the expiry price of a certain asset will fall in/out of the specific price range given. This option is usually composed of the upper and lower limits.

Call Option -This refers to one of the choices provided during a binary option trade .If a trader predicts that the price of an asset will increase in the specified expiry time, he/she buys the Call option.

Put option – If a trader predicts that the price of the underlying price will decline in the given duration of the trade, he/she buys the Put option.

High/low option -This kind of an option allows a trader to specify if he/she expects the price of the underlying asset to be higher or lower the target price. This is a very popular trade option on the binary options trading platforms

Touch/No Touch option -This choice of an option allows a trader to specify if the price of the underlying asset will at one time touch/not touch a set price ceiling during the life of the trade.

Early Closure -This refers to a situation where a trader actually ends a trade before the selected expiry time. A portion of the original investment amount is forfeited.

Expiry Price -This refers to the price of an asset at the expiry time of the trade. This is what really matters in a binary option trade as it is this result that determines if a trade has ended in the money or out of the money.

Investment – This is the amount of money used by the trader to buy an option. Simply, this is the amount that a trader is willing to risk on a given trade.

In the money – If a specific trade ends as predicted by the trader, the trade is said to end in the money and the trader receives the payout agreed upon.

Out of the money – If the initial prediction of the trader turns out to be incorrect, the trade is said to end out of the money. In such a situation, a trader is set to lose his/her investment.
Payout –T his is the expected returns at the end of a trade. This is specified before a trader buys the option. This usually varies from one broker to another or from one type of asset to another.

Final Word
As far as binary options are considered, the concepts above are the main requirements before participating in any trade. Take the time to learn the basics so you can trade accurately and effectively.

Short Term Investment Option

Short Term Investment Option

A short term investment option with relation to binary options is explained with relation to the expiry time of the trade. For most brokers, the shortest expiry time for a binary option trade is 60 seconds. However a short term investment option may also be 2, 5, 10 or 15 minutes. In fact, some brokers now also offer 30 second trade options! Short term binary options’ trading offers a range of benefits for both experienced investors and rookies who are getting to grips with the workings of this investment model. Short term trading enables a trader to quickly know exactly what the result of their trade is, as well as offering a lower level of risk and a chance to make quicker profits.

The Basics of Short Term Investment
The short term investment option is a binary options trading strategy that makes use of a 60 second to 15 minute charts to forecast the direction of an underlying asset’s price within the selected time period. When implemented correctly, a strategy for short term trade could be highly profitable. Any strategy for short term investment options should be geared towards placing trades at high frequency since the expiry times are extremely short. Short term investment strategies work best for volatile underlying assets such as currency pairs that move every few seconds as well as for trending assets which are moving in a particular direction over a long period of time.

Keys to Successful Short Term Binary Options Trading
A successful short-term trader will therefore need to develop a method of quickly analyzing markets and be able to act fast on their decision if they are to make a successful trade. For this reason, it is best for a trader who is new to short term options trading to test the strategies they develop on a demo account. This allows a trader to practice in a risk-free environment before moving their strategy to a live trading account. If a demo account is important to your trading success, make sure that the broker you have selected offers this facility before you sign up.

Understanding the Role of Trends in Short Term Trading
It should be clear by now that the key to successfully trading in a short term investment option is research. According to an old adage popular with experienced traders, ‘the trend is your friend.’ A trend is an indicator of the general direction the price of an underlying asset takes. In order to be profitable, a trader needs to invest their time in understanding the workings of the market, where the market tends to and what the most profitable short term assets available are. Once a trend begins, it will likely continue for a longer period of time. Placing a short time position according to the prevailing trend gives a trader a higher likelihood of success.
Short term trading presents the opportunity to make high returns with relatively lower risks than longer term positions. However, successful trading in short term investment options requires astute money management skills, highly analytical thinking and the ability to make quick decisions.

Your Binary Options Trading Scorebook

Binary Options Trading Scorebook

Whilst many people find the relative simplicity of binary options trading to be one of its largest draws, it is not true to say that it is quite as simple as it may at first seem. Of course, this type of trading is very easy to get started in—anyone can go from having had absolutely no experience of financial trading in any form to having made profit on binary options trades within mere minutes and a few mouse clicks—, but it is not so easy to master it. The difference between the novice and the professional trader comes down to one thing: consistency. That is your ability to predict the market accurately and often. Whilst you can make money without a consistent approach to binary options trading, the serious profit comes from ensuring that you are only trading to win. An important step in that learning-curve is record-keeping, and that’s where the trading scorebook comes into play.

Why use a Trading Scorebook?

It is important to keep a complete record of all your binary trading activity.  The primary objective of this exercise is to monitor the performance of your trading strategy. When constructed properly, a trading diary can be a device for both learning and goal-setting. Consistently maintaining a record of your trades is time-consuming and will test your will-power, but that effort on your part is crucial for your long-term success in binary options trading.

Few tools have proven as useful to traders as a trading diary, because one can learn much more from reviewing his own trades, than from reading a good book or attending a seminar. Since every trader is different, each will have his own preference for maintaining a trade record. A large number of traders still prefer a physical book where they note down their trades, along with the reasons why they got into it. Another very simple way to keep a tab of your trades is to use a calculation program like “Excel” or “Open Office Calc”.

How do I get started with a Trading Scorebook?

It couldn’t be a lot easier, as much of the work has been done for you! Paul Applegarth has provided a tool which is ready to go and which you can use to keep track of all of your trading. It comes in the form of an Excel document which you can download for absolutely no charge.

Traders can use it to calculate their potential wins and losses before they enter into a trade. Also, there are separate sections for monitoring the monthly trade results of the various underlying assets. The excel sheet contains a very useful tax calculator that helps you figure out your net profits after deducting the various taxes that are levied on financial transactions.

It is strongly advised that you start using one of these tools as soon as possible, as it will be far more time-consuming to go back and fill in all of your previous trades after the fact than it is to fill them out as you go. The data is invaluable.

Trading with One Pair Options

one pair options

The right one pair options can provide individuals with a comprehensive and enjoyable way to trade. As with an such option, however, it is important for all traders to prepare for their trades in the right way. Because of how new this type of investment is, your choices will be relatively limited, but with the right brokers, you will be able to enjoy a much more diverse and enjoyable trading experience. As such, the first thing that you will need to do is work with the right type of broker. Once you have your broker in mind and are prepared to proceed, the rest of the process is relatively straightforward and easy to understand.

With a new account established, all that you have to do is make your initial deposit and then look over the website to see where you would like to proceed. It can be easy once you start opening positions and then visit the trading room itself. All of the options will appear available to you, with a variety of different assets and types of commodities that you can invest in, according to how you want to trade. You will notice that you have the chance to work with a pair of options, with two assets available for your selection that can allow you to choose a certain fixed expiry time and measurement for the option itself. Looking into the options, you will be able to choose your exact expiry time, which can range from anywhere between one hour and one hundred and fifty days. After looking into that, you will be able to see what assets will outperform others in a certain time. Understanding what types of pair options you have to work with is an important part of getting started in this unique trading field.

The two distinct types of one pair options that individuals have to work with are known as fixed pair options and floating pair options. In a fixed rate option, you will choose a pair and state which of the commodities you believe will outperform the other. Your investment and deposits are all detailed immediately, so you will always know exactly what you plan on working with before you even finalize the trade. You will see what has a better chance of overcoming the other, and you will be able to make your trade accordingly. With a floating pair, on the other hand, the process is a little bit more different. The principles are the same, you choose a pair of options and activate a trade, but the measurement of its performance will begin the day you choose the trade, not the exact time. This means that you will have to take that additional factor into consideration when you make your trade, making all of the necessary adjustments as they apply to your personal trading strategies.

What is Index Investing?

Forex trading

Index investing is a type of binary options trading venture where a trader settles to trade on a specific group of stocks that represents a portion of a stock market. One group of stocks is known as an index. Stocks of the 500 leading companies in leading industries (Standard & Poor’s 500) and those of all publicly traded companies in America (Wilshire 5000) are the most traded indices and they command a huge following in index investing. Other well-known indices include the Nasdaq (COMP) and the Dow Jones Industrial Average (DJIA). In traditional index investing, short term index trades were very confusing but with modern binary options trading, index investing has been simplified and even caters for short term trades.

Why Choose Index Investing?

Index investing usually comes with an edge over other ventures. Main reasons for investing in indices include:
• Diversity. Comparatively, index investing is more diverse than other options. This owes to the fact that indices are grouped hence allowing access to more stocks. For instance, for the previously mentioned S & P 500 index (SPX), it entails stocks from the 500 reputable companies from leading industries. Other options usually entail investing in just one stock.
• Low operating requirements. In index investing, a panel of “MBA” analysts is not a necessity. This is often due to the simplicity of index trading. This in turn reduces the operational expenses.
• For one-decision binary options traders, index investing can be literally very easy and less tedious. Once a trader identifies a potential index, he/she has to simply predict the direction that the price of the index will move and to trade accordingly on the broker’s trading platform. Simple!
• Choosing an index is relatively easy. After selecting an asset class a trader is supposed to find the most efficient index in that specific class. Also, an investor can easily pick an index according to the indices market performance.
• Absence of security specific risks. Indices like the S & P 500 (SPX), involve a range of stocks and hence allows a trader to invest on a broad class. The stocks under this broad class, have limited exposure hence reducing security-specific risks. This actually means that a fluctuation in price of a stock in an index will likely only have a minimal effect on the overall performance of the index.
• Easy portfolio management. Since traders don’t have to worry about the performance of a particular stock in an index, they just have to periodically re-evaluate their portfolios based on the index’s performance.
Although index investing is associated with a couple of advantages, it also has some disadvantages
• Considering indices volatility, a trader can make substantial losses for highly volatile indices. Highly volatile trades that are traded in short expiry times expose the trader to unimaginable risks due to sharp fluctuations.
• Most indices comprise of only larger companies. This in turn makes index investing “less fun”. This could make potential opportunities out of reach for index investors.
• Intraday pricing. For long term index investors, the intraday pricing can be disadvantageous. This makes index trading more suitable for short time durations.

Final Word
Index investing can be turned to a money making machine as evidenced by the above mentioned reasons. It is however advisable to consider trade durations of indices been traded. Though no prior knowledge or expertise is needed for index investing when trading binary options, proper usage of tools available is a plus as well as an understanding of the financial markets and the factors that influence price movements.

A Guide to Pairs Trading

Pairs-Trading

For traders who are interested in diversifying their assets and markets, they will find that there is a great deal of long term potential that can be enjoyed with the right approach to trading. Pairs trading is one of the most market neutral strategies that can allow individuals to match their long positions with their short position with a pair of correlated instruments. These can include two types of stocks, exchange traded funds, currencies, commodities, and even options. Pairs traders will be able to wait for weaknesses in correlations, then move forward over an under performing, while going short over the over performer, all at the same time. A guide to pairs trading will always take into account the fact that individuals have a much higher chances of working with financially sound and successful investments. It can reach the point where they will be able to focus on changes between instruments, instead of directions in the market, effectively optimizing their strategies with the long term in mind.

The main point of profit derived from this strategy is focused on the difference in price changes between two different instruments, instead of directions in which these assets will move. In such a way, a very efficient profit can be established if a long term position will move forward more than a short term position. Similarly, if a short position goes down much more than the long position, then you can expect to enjoy a much larger profit margin. It can be possible for many pairs to be profitable during a variety of market conditions, no matter whether the market is faced with periods of moving sideways, up, or down. This strategy can work efficiently in both calmer markets and extremely volatile situations. However, much like any other type of strategy, this one is subject to the expertise of the trader and whether or not they will be able to capitalize on certain pairs over others.

The effective guide to pairs trading will be put in practice by individuals who understand how to assess risk and move forward at a comfortable and reliable pace. The origin of this trading strategy revolves around market principles and analyses as they were developed by mathematicians and computer scientists. One of the central aspects of their research was the proper development of methods that can identify pairs and follow them in accordance with historical price movements. Where the exact movements cannot be traced to immediate, guaranteed historical results, individuals will strive to work with the next best thing, which is as close to correlations as the analyses can get. This type of trading strategy has become especially popular among individuals who are prepared to do the research as it pertains to numerical values and market indicators. By carefully following historical patterns between pairs, individuals can expect to profit in the long term with this strategy.

Why Binary Options are Popular with Modern Investors

why binary options

There are several reasons why binary options have grown in popularity in a short timeframe. This method of trading began in 2008, and was immediately a hit with traders who wanted an online platform that could offer short term transactions. Binary options afford the trader a number of different benefits. Regardless of your experience, binary options can take your investing to a new level.

Easy to Master and Quick to get up and Running
Binary options provide a straightforward and dynamic method of trading the global markets. In contrast to other trading styles, binary options are far less complex. With binary options, traders only need to decide whether an asset will rise or fall in value, over a specified period of time. They do not have to determine the degree of the price movement.

Round the Clock Trading
Trades can be made any time of the day or night, irrespective of the market conditions. With binary options trading, assets do not have to reach a certain value, before trades are entered. Instead, there’s always an opportunity to trade and make a profit, whether asset prices are moving up or down.

Greater Control, Less Work Involved
With binary options, the risk/reward percentage can be controlled by the trader more effectively, compared to other trading methods. You can gauge the risk/reward ratio for trades, with the chance to reduce your risk on unprofitable trades. Also, when trading binary options, your trades automatically close at the specified expiry time. This means that you can avoid monitoring your positions constantly.

A Range of Expirations
You can trade more often and with more versatility with short term trading. Expirations can be set for daily, hourly, weekly, and even short timeframes, like quarter of an hour or one minute binary options. Also, you can adopt a long term strategy, with long range trades that feature end of year and/or end of month expiries.

Say Goodbye to Margin and Leverage Calls
In contrast to futures, CFD or margined forex trading, binary options aren’t leveraged products. As a result, you will never lose more than the amount you deposit initially. Better still, there is no need to fret about using stop orders or margin calls.

Lots of Markets Means More Profitable Opportunities
Binary options offer a highly convenient platform to trade a range of asset classes and markets, such as stocks, forex, stock indices and commodities. All this can be done from a single account. While stocks or forex trading often involves brief bursts of market movements, interspersed with long periods of inactivity, binary options offer a far more consistent experience.
Therefore, it is clear why binary options trading is so popular. It is more versatile and provides more opportunities for traders, even when the market is reasonably inactive. Once your account is funded, you just need to form an opinion about an asset, based on research you can carry out easily. Then, after just a few clicks, you can place your trade and (based on your chose expiration time) see the results quickly.

Understanding the Crossing Averages for Binary Options Strategy

Binary-Options-Strategy

Traders should always strive to make their trading experience as easy and comprehensive as possible. Whether this revolves around trading only a select few, consistent assets, or working with strategies that you are comfortable with, it is important to take a relaxed, patient approach to trading in order to profit consistently. One of the most important parts of the trading process involves finding what strategies will work for you. The crossing averages for binary options strategy is one of such strategies, and it can be effectively used to secure your profits as you take on a more direct approach to your trades.

This is a relatively simple strategy that you can use based on one very easy to understand technical analysis tool, which is the moving averages. In the field of binary options trading, especially revolving around the call and put binary options, it is important to based your decisions on what you can effectively see in various trends. This strategy, in particular, can be a very strong tool in your repertoire because of how simple and effective it is. It is particularly useful and recommended for beginning traders, as they will be able to optimize their trades based on the trends as they are being made available. All that you need to do to trade effectively is proceed at a patient and steady pace.

This option works with all types of binary options assets, which makes it especially versatile for beginning traders who are still finding which options will work best for their needs. It can work with all types of trading methods as well, and as long as the traders are prepared to analyze the overlays accurately, they will be able to benefit in the long term. The overlays for such a strategy revolve around the moving averages. This type of overlay will draw two lines, which will represent the average of the asset’s rates at different time frames. Because of how simple it is to use, these trends can be analyzed fairly quickly and accurately. The conditions for these averages will usually indicate a trend depending on where they cross, while the short term average will help analyze the direction’s indicator. If you notice that the shorter term average is crossing over the longer term, then an uptrend is likely to happen, while the opposite conditions will hold true for a downtrend.

In such a way, using the crossing averages for binary options strategy is one of the simplest ways to watch trends and see how they evolve, while charting their direction and preparing to move with it at the right time. The simplicity of using two averages will help eliminate a large degree of the background noise, which can allow traders to make their assessments in a much more accurate and relaxed way, something that is absolutely crucial for consistent trading.

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