How to use Binary Options to maximize your earnings during a false breakout

Forex Options are becoming more and more popular nowadays among Forex traders as an additional tool for short-term speculations which are based on technical events. Although Binary Options are still young and suffer from liquidity and hence high premiums Swing-Traders, Scalpers and Day Traders find the predetermined risk-reward ratio (~70% on trades that are "In the Money" and 10% on trades that are "Out of the Money",) extremely productive.


The most traders like to trade around market events or chart patterns. The stronger the event or the pattern the more volume they will attract and improve the odds of breakout success. Quite often a false breakout can frustrate your expectations. This happens when not enough volume concentrates around the Event which is leading to a pullback before you had a chance to take profit. However pullbacks do not have to blast your profits if you trade the event with a Binary Option. E.g. on 17/02/2010 the FOMC Meeting Minutes failed to generate enough volume for the EURUSD to create a sustaining rally. As the image illustrates eventually a pullback at 20:00 GMT to the event level at 19:00 GMT of 1.36167 would have left you with no gains and lost on the spread. If you had traded a Binary Option you would have made $70.


Here is how:


At the time of the event you place a Put Binary Option trade. The cost of the trade is $100 and returning $170 if the price ends below 1.36167 or $10 if the price ends above.


Since the price returned almost back to the breakout level you would have made $170 on your Binary Option trade whereas you would have made $0 and even paid for the spread when you had traded the EURUSD directly.


So basically what the Binary Option offers you is a way to profit on weak events so you can target many more events. Otherwise you have to wait for GDP or other big news or patterns that generate sustaining breakouts.