Understanding Assets and Expiry Times
Traders of binary options will need to develop fluency not only in the underlying assets on which their trades are based, but on the expiry times offered by brokers on their trading platforms. A review of both of these areas will assist new traders, and may serve as a useful brush-up for experienced traders as well.
Expiry Times And How They Work
An expiry time is the time period within which the trader’s prediction must actually occur in order to trigger the option and permit a payout. If what the trader thought would occur by the expiry of the option period has not occurred, the trader will lose the option price. If the trader’s prediction comes true by the end of the option period, the payout will be made.
While there are some brokers whose platforms permit traders to select tailor-made expiry times, in most cases brokers will offer a set menu of expiry times. These fall into the somewhat obvious categories of short, medium, and long expiries.
How Short Is Short?
Short really means short, with the expiry occurring between one and five minutes after the option is exercised. These options are favored by traders who are basing their trades on perceived short-term momentum in the underlying asset’s market. Medium expiries extend for between five minutes and one or two hours, and long expiries run between two hours and 24 hours.
Many trading platforms, by the way, will display a countdown clock for each option that a trader has exercised. As to payouts, an examination of payout rates and other statistics has shown that long expiries can be predicted the most easily, and they offer correspondingly lower payouts.
Matching Expiry Times To Assets
Matching the expiry time to the asset category you choose to trade on does indeed make a difference. This is something that not all traders take into consideration. When it comes to foreign exchange options, which involve predicting the direction of currency values, longer-term expiry dates are the better way to play the odds. Currency rates are subject to small fluctuations, but those fluctuations can occur with high frequency, and can occur suddenly.
As a result, the direction of a currency over a longer time frame can be predicted more accurately than its direction over a shorter period. The same holds true for stock prices, which are always shifting about in the short term, but whose direction over longer periods can be teased out by careful and dedicated students of the market.
Commodities and stock and bond indicies, however, fluctuate less than individual stocks. Traders will therefore benefit, on average, by choosing shorter expiry times for commodities and indicies, since short-term predictions for these asset categories can be made with greater accuracy.
Flexible Brokers Permit Flexible Trading
As you can see, selecting the optimal expiry time and matching that selection to the underlying asset on which the trade is based is critically important. Traders should therefore favor brokers who offer a range of expiry options that permits optimal trading. The wider the selection, the greater the trader’s ability to construct and implement winning strategies in the exciting world of binary options trading.