Hedging Calculator for No-Touch Binaries
When trading no-touch binary options based on currencies, it is possible to hedge your contract with a spot FX position. It will not give you “free money” or result in some huge profits, but it can mitigate some risks if you are unsure about the behavior of your underlying currency pair. To hedge a no-touch option you buy spot pair if binary strike price is above current rate, and you sell spot pair if binary strike is below current rate.
This calculator can be used to calculate position size for your hedging trade and also to show you all the possible outcomes of the hedged option/spot trade. There are four hedging models supported by this calculator:
No hedging. No position size to calculate – it will just show the win/loss results for your binary option. Use it if you are feeling certain that currency pair will not reach the strike level.
Simple hedging without stop-loss. You enter the hedge trade simultaneously with buying a binary contract. You set take-profit to strike rate and you do not set any stop-loss at all. The position size is calculated so that take-profit reward is the same as the cost of your binary option. Use this method if you believe that there may be a sudden spike in price, but the currency pair will not move too far against your spot trade.
Simple hedging with stop-loss. The same as above, but you set some stop-loss based on technical or fundamental analysis of the market situation. Use this method if you believe that there may be a sudden spike in price and you are afraid that the currency pair may end the period too far from your spot entry trade.
Conditional hedging with stop-loss. The same as above, but you close your binary option trade as soon as stop-loss is triggered. Since the option will be “in-the-money”, it will offer some profit to cover the stop-loss. Use this method if you believe that there may be a sudden spike in price, you are afraid that the currency pair may end the period too far from your spot trade entry, and you do not want to risk the price hitting your now unhedged strike rate.
Warning! The results presented here may be slightly inaccurate as currency pair's Ask rate at the moment of trade's end is unknown.
Position size for hedge spot trade is currency units or standard lots. There are possible outcomes for your trade:
The above calculations are presented for educational and informational purposes only. You must be aware of the following risks when engaging in the inter-market hedging:
- Hidden costs and commissions imposed by your binary and/or spot Forex broker.
- Transactional risks as it is nearly impossible to open both binary and spot trades at the same time.
- Swaps (overnight/rollover interest) paid for holding spot positions. They can be positive or negative. Consult your broker before proceeding.
We recommend testing these hedging methods on demo accounts a few times before trying them on your live accounts.
If you are interested in spot Forex trading, but do not know where to start, we recommend EarnForex.com as your learning resource.