When we shoot the gun we can not take the bullet back to the gun shell again. But luckily in the financial market, we can save the majority of our investment with hedging. Hedging is a bit common with the majority of forex brokers nowadays. But it’s new with the binary options brokers.
With Binary options broker Deriv Multiplier, we can hedge our binary options positions and make a good profit also reduce losses. We will show you how to do it here.
What is Hedging?
Hedging is a way of decreasing capital risk in trading. It is done by opening both Puts (Sell-side) and Call options (Buy-side) trade altogether. Having two trades open in opposite direction reduces the losses. Positively in the case of binary options, there will be some losses but that loss will be lower than the actual investment.
In this example here, we have opened a buy-side trade on the Volatility index (synthetic indices) with 100x return. Later we have placed a sell-side down trade on the index with the same 100x return. In both cases, our risk was only $1 and the return target was $100.
When we placed both trades, now if one trade gets in loss, we will still have profit in another one that will help us to either make some money or reduce ours overall loss for a single trade.
See in the above profit statement, we have earned 19 cents in one trade and lost 12 cents in another, so the total profit is 7 cents in this slot.
When you should be hedging?
If you placed a trade and if it goes against your direction, then you can place a hedge trade with the same stake size to reduce the risk.
In the above example, our trade was moving against the selected trend. So we placed an opposite down trade and that locked the loss at 21 cents instead of losing the full 0.36 cents if we just closed the trade without hedging. So this way, you can save your money with hedging.
With Deriv Dtrader you can exit from your trade earlier by selling back the trade anytime. This way you can close any losing trade earlier and save money from losing the whole trade value.
With the above picture, the trade profit return was $1.95. But we can close the trade before the time expiry with $1.22, i.e 22 cents profit instead of 95 cents profit. If we think that trade can go against our prediction.
Hedging is all about balancing your trade risk. Therefore proper calculation is required before placing a hedge trade. If hedging is used tactfully then investors can save lots of money from losing on a failed trade.