Some traders panic when trading binary options until expiration. The premiums go crazy and it looks like they are losing when actually if they focused on the indicative price index they would receive the maximum payout.
Trading Binary Options for the Full Payout
In this video, Gail Mercer, Founder of TradersHelpDesk, shows you how based on premiums the Profit or Loss can show negative when actually the full payout is realized. Traders allowing their binary options to expire should always focus on the actual indicative price index and not the P/L because it can be misleading.
The difference is really simple once you understand it. If you are exiting a binary option early, then you must rely on the premiums because you need another trader to either buy your contract (if short) or sell your contract (if long). However, if you are allowing the trade to expire, then you do not need another trader to either buy or sell. The old adage, for every seller there must be a buyer and for every buyer there must be a seller comes true. In this case, Gail was short on the USDJPY. If she were to exit early, she would need to buy to close, meaning there would need to be buyers for her to exit the position.
However, since she opted to allow the trade to expire, no buyers or sellers were needed. Instead, she focuses on the indicative price index which is all that matters when trading binary options.
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