What about risk control when the markets are going the other way and the open positions are not working out? The scenario might be familiar to many: a position you believed would work out great is just out of energy the position. The way to reduce the impact of this loss is to view the loss as a contra-directional signal. In other words, leave the position alone, and go the other way by putting on a position that goes with the market expectations either in the same underlying market or in a correlated one. This amounts to switching horses in the middle of the rate.
The problem with this approach is more emotion than meets the eye. Traders tend to marry their positions and get attached to the ego factor in being right. Switching, to these traders, means admitting they are wrong. Yet, it’s important to realize that the market doesn’t care if the trader is right or wrong!Leverage and Margin:Risk control is helped because of the fact that in binary option trading there is no margin.
The amount traded cannot exceed the amount of cash in the account. A $10,000 account cannot have more than $10,000 purchased. If a trader is selling a $15 binary option with a bet that the strike price will not go above a certain level, the account will require that $85 be set aside to hold that position. Therefore, the most that can be risked, $85, is the amount of the margin calculated. It doesn’t matter if there is a resting order.
The tactical implications are relevant when the trader is putting on a large position, such as 50 lots. As soon as it is put on, the Nadex exchange or IG will consider the total margin to be calculated as if the entire position is filled. A working position, therefore, has the same margin requirements as a filled position.