Saturday, March 24, 2018

Loss limitation for binary options: Loss protection and early closure

Binary options work in such a way that the trader can achieve yields in the high double-digit or even triple-digit range on the one hand. On the other hand, however, there is always the risk of losing the stakes completely. In binary option trading, therefore, there is always a total risk of loss, which trader of course would like to avoid. For this purpose, some binary options brokers with the so-called loss protection offer the possibility to protect at least a smaller part of the invested capital. Such a loss hedge is not offered by any broker on the one hand, and on the other hand it usually reaches a maximum of 15 percent. A 15 percent loss hedge means that you will not lose all your capital in a lossy trade, but still 85 percent of the stake. Only the aforementioned 15 percent will be credited to you in spite of a loss-rich trade.

Another way to help you deal with binary options is to use the early closure feature. However, we would like to mention at this point that it is by far not all binary option brokers that provide such additional functions.

Early closure for binary options

The early closure as an additional feature is to be compared in a certain way with a stop-loss in stock trading. With the addition of early closure, the broker gives the trader the opportunity to practically sell back the stock option before it expires to the broker. If, for example, the trader finds that he is speculating on a rising Dax index, but the German stock index has lost significantly since the purchase of the binary option, he could make even greater losses by using the additional function, in this case even Total losses.

Stop-loss order as a classic means of loss limitation
The so-called stop-loss order is probably the most well-known means by which already opened positions can be hedged and losses minimized. This special order is used for all financial products belonging to the following groups.

Forex Trading
The stop-loss order is a very effective way for traders to minimize or limit losses when trading in foreign exchange as well as in equities and CFDs. This tool is offered free of charge by all our well-known forex brokers. An exception here are guaranteed stop-loss orders, where your position is also executed in the case of gaps or massive price slips at the desired stop-loss level. Guaranteed stop-loss orders are therefore usually charged and are not offered by all forex or CFD brokers.

Stop Loss Order

In a simplified manner, a stop-loss order stipulates that a financial product in stock, such as a stock, is automatically sold on condition that a price determined by the investor is reached. This course is typically almost always at a lower level than the cost price at which the investor has purchased a stock, for example. If this trader’s price is reached in real trade, the stop-loss order is executed immediately. This causes the position in the inventory to be smoothed by selling the corresponding value