Mar 23, 2010

Forex Crunch Trading Binary Options During Key Market Events

Forex Crunch Trading Binary Options During Key Market Events

Trading Binary Options During Key Market Events

Posted: 23 Mar 2010 02:42 AM PDT


Guest post by the StartOptions team.

This week will prove to be a good week for trading, with many market moving events coming up. The most notable, when it comes to moving the EURUSD pair, are probably these releases: American Existing Home Sales: Published on Tuesday at 14:00 GMT. American New Home Sales: Published on Wednesday at 14:00 GMT, American Unemployment Claims: Published on Thursday at 12:30 GMT, American Final GDP: Published on Friday at 12:30 GMT.

As you can see, not a week to miss out on. Lately I have been writing about my experiences in hedging my EURUSD Forex trades. I have tried various techniques to limit my risk during these market events, since they can be terrific on the upside but terrifying on the downside. The greatest success I have had so far is hedging using Binary Options.

Hedging your Forex trades using Binary Options is actually straightforward. Right after you have placed your EURUSD trade, hopefully in the direction of a huge market move following these events, now place a Binary Options trade in the exact opposite direction. I like to use www.startoptions.com for my Binary Option trades because of the ease and simplicity with which they have designed their trading platform. Nothing could be faster and easier to start and trade Binary Options.

The reasoning behind placing a Binary Option trade in the opposite direction of the breakout is as follows: if I were to place a stop, say 10 pips below my breakout point, then in the event of a breakout failure I would lose 10 pips. However, by placing a hedge in the form of a Binary Option trade in the opposite direction of the breakout, if the EURUSD trade goes sour and I hit the stop loss, then my gain on my Binary Option trade covers that loss. So in a way we can think of the hedge is transferring the risk from below the breakout point to above it, since we are not rid of the risk completely. If my Binary Option trade expires at a loss, I would then like to cover that loss with my EURUSD trade. However my experiences have shown me that a breakout tends to either win big or lose big, rather than fizzle. In other words, the chances are much greater that the breakout will move one way or the other, rather than stay forever at the breakout point. So the chances of losing this hedge are very low.
The image above illustrates this. Between point A of the breakout and B of my stop loss, the hedge is profitable. Above point C the profitability is theoretically limitless. So this shifted the risk from area A-B to A-C, where the breakout is unlikely to fizzle.

Disclosure: I’m affiliated with StartOptions.

Euro Breakdown, Healthcare Reform and USD/CAD parity – Video Weekly Outlook

Posted: 22 Mar 2010 04:10 PM PDT


On the weekly video outlook on Forex TV, I spoke with Julie Sinha about a possible breakdown of EUR/USD, the short term effect of the healthcare reform, the struggle the USD/CAD has towards parity and more. Enjoy:

Want to see what other traders are doing in real accounts? Check out Currensee. It’s free.

Forex Daily Outlook – March 23rd 2010

Posted: 22 Mar 2010 02:00 PM PDT


After a light Monday, the calendar becomes more crowded today. British inflation figures and American Existing Home Sales among other events. Let’s see what’s up for today:

In Switzerland, SNB Governing Board Chairman Philipp Hildebrand will speak about the central bank’s monetary policy during the crisis. Referring to interest rates and possibly currency interventions will probably move the Swiss Franc.

British inflation is expected ease this time: CPI is predicted to drop from 3.5% to 3.1% (annualized). This outcome will prove that Mervyn King’s dismissal of rising prices was correct, and that no rate hikes are necessary. Core CPI is expected to edge down to 3% and RPI (Retail Price Index), is expected to remain unchanged at 3.7%. And there’s more in Britain:

CBI Realized Sales,  a significant gauge of the economy as well, is expected to drop from 23 to 20 points, still a good score. For more on the British Pound, read the GBP/USD forecast.

In Canada, the Leading Index usually moves the loonie. It’s expected to rise by 1%, similar to last month’s 0.9% rise. See more about the Canadian dollar in the USD/CAD forecast.

In the US, Existing Home Sales are predicted to remain stable, with an insignificant drop from 5.05 to 5.01 million sales. This will shake the markets, whatever the outcome. A related figure, HPI (House Price Index), is expected to show a drop of 0.9%.

In Europe, Belgium’s NBB Business Climate is predicted to improve from -7 to -4.1 points. Many analysts are expect the Euro to test lower levels this week. I’m with them.

For more on the Euro, read the EUR/USD forecast, and Casey Stubbs’ latest analysis.

In New Zealand, Current Account is expected to show a bigger deficit – 1.6 instead of 1.4 billion. This usually moves the kiwi. The day ends with the Japanese Trade Balance which will probably show a smaller surplus than last month.

That’s it for today. Happy forex trading!

Want to see what other traders are doing in real accounts? Check out Currensee. It’s free.
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