Binary Options Trading
The binary options market continue to gain immense popularity on a global scale, attracting seasoned and new traders into the fast growing market. Binary options trading consist of predicting the market within a predetermined time frame known as the expiration or expiry.
The profit, known as the payout, is a fixed Return on Investment (ROI) that is known to the trader before executing the trade in the market. A successful prediction will often reflect in the trader receiving over 75% ROI on the funds he or she chose to invest in the binary option.
For example, if you invested $1,000 in EURCAD call option, predicting the price will rise at the end of 60 minutes (the expiration), if the trade was successful and the payout was 75%, the trader will earn $750 (75% of $1,000) on the trade.
Numerous amount of trading strategies were published for trading in this fascinating market,but none discuss the flaws that can be manipulated into one’s advantage. In this exclusive research we will highlight a possible loophole in the system and several warnings traders should be aware of.
The Market Feed Exploit
The market feed is the streaming quotes in the binary options trading platform for the financial assets. You may be asking yourself how can the market price be exploited and the answer is very simple. Due to the growing amount of traders that are active in the trading platform the system becomes heavier.
In most cases it will be unnoticed unless a close attention is paid to the market feed. In heavy trading platforms, the market feed will be slower, creating a narrow window to manipulate the system.
Let’s say you wish take a EURUSD call option. The current price in the trading platform is 1.28912. To determine if the market feed can be exploited, the trader needs to have another trading system open in front of him or her but not an account from another binary options broker. It can be the MetaTrader4 (MT4), Trade Station or X Station for example.
Each forex broker is likely to use a different market feed so opening an account with just one broker may be insufficient. The aim of using another account is to acquire a faster market feed than the one your binary options broker is offering in the trading platform. To clarify, EURUSD could be trading at 1.28931 but it may take a second for the price to be updated in the market feed your broker is offering you.
This could be a half a second, a second or even a number of seconds. By having a faster feed you know what EURUSD price will be before it is updated in your binary trading account. This exploit may give you the upper edge in trading binary options.
As you are only a second ahead of your broker, selecting a 15min expiration will be of no use. A 30 seconds and even a 60 seconds expiry will be the ultimate choice for the market feed exploit. It is true there is no guarantee the trade will expire in the money, however, it will mean the trade will be instantly in the money upon its execution.
The greater the price change, the higher the odds of the trade expiring in the money. If EURUSD jumps to 1.28951 and in the binary platform it is still 1.28921, a 3-pip exploit may do the trick with a 30-seconds expiration.
When setting up accounts in the MT4 or X Station, it is essential to open multiple accounts with various brokers as different market feeds are likely to be used by each broker. Rather than focusing just on the financial assets that offer the greatest payouts such as EURUSD, do pay attention to all the FX pairs and crosses the broker is offering you such as EUR/NZD, NZD/JPY or GBP/AUD.
What is also important is the time. During the day, there may be certain hours when a greater delay take place. It could be in any time during the day, morning, afternoon, evening or late night. When you have determined which financial asset can be exploited and its hours, you may dramatically improve your success rate. If the broker is regulated little can be done to deprive you of your profits.
Watch the following video showing how testing the market feed is conducted in a random binary broker:
The FX rates may differ from broker to broker, which does not necessarily mean it is not the real market price. Once you determine the price difference from your binary broker to the other trading platform you are using to test the market feed it will be possible to determine if the binary rates can be exploited.
If you have traded Forex before and are considering to trade binary options, you may refer to our advanced binary options strategies.
The Trading Signals
Thee is no STP or ECN in the binary options market. All trades are executed in a market-making (MM) environment. For a binary options broker to prosper, its traders must post significant losses. If in theory 80% of the broker’s traders succeed for a substantial period of time the broker will be unable to operate and may follow bankruptcy procedures.
A broker that is offering trading signals is unlikely to shoot itself in the leg. It is therefore suggested to thoroughly test the offered signals. The goal is to have a poor success rate, preferably below 30%. When it can be determined the signals lack a decent success rate, all that is required to be done is to take the other end of the trade or in other words do the opposite.
In the spot market, ECN and STP brokers may strive for quality signals but in binary options ECN and STP are not possible.
If you are considering to subscribe for an independent trading signals service in the binary options market please note there are countless of fraudulent business that operate in this segment. It is difficult to determine a legitimate signal provider in binary options that provides quality trades in today’s markets.
The means of copying trades from leading traders is also becoming increasingly popular. In binary options each fraction of a pip seals the fate of the trade. If there is a sudden market move after the leading trader executed the trade you are unlikely to receive the same target price. This deviation is likely affect the outcome of the trade at the expiration as it is possible the leading trader will be in the money while your copied trade will expire out the money.
In a market where a fraction of a pip counts, timing is crucial. We therefore suggest to thoroughly test the executions in a social trading platform rather than fall in to the high success rate of the leading trader.
If you have heard of the Martingale trading strategy we suggest reading our latest research on the topic.
May 2017 UPDATE: We have launched binary options trade alerts (signals).