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Monday of last week saw a dramatic drop in worldwide equity markets. Particularly in the United States, the day was historic as the Dow Jones Industrial Average futures saw its greatest intra-day point decline ever, down more than 1, points at its lowest.
Fluctuations were extremely violent on the Dow Jones futures as five-minute ranges saw as much as point fluctuations. Many traders had issues with the use of stop orders Monday.
There was not room to have a stop unless the stop was far wider than normal, putting the trader far more at risk.
In addition, traders had to decide between stop-limit orders — which, given volatility, may have failed to work — or stop-market orders, which were subject to slippage. Some traders mentioned having as much as 50 to 75 point negative slippage on stop orders that day, making stop orders nearly as risky as market orders. Binary traders could simply focus on the market being where they desired by the end of the time-frame selected for expiration.
The nature of binary options is a yes-or-no proposition — whether the market will be within the selected strike by expiration — with known risk and reward. Often, traders can risk so little that a protective stop is not even needed. Also, binary options present no slippage concerns; what one pays for the options is the limit of the risk.
During the early part of the day, equity and futures options experienced additional volatility as it was difficult to price those options.
This alone would have frightened most traders, because the difference was more than what most traders are willing to risk on an option. If traders chose on such a stressful day to venture out into dangerous waters, they may have found themselves in undesirable situations, having to exit a losing position or getting a dreadful margin call.
However, one great feature of binary options is that margin calls do not exist. One cannot lose more than amount paid for the option; thus, a binary option trader is not buying on credit. Last Monday was a great example of advantages provided by binary options in the midst of a volatile market. Davin Blythe FairValue Trader has been a full time options trader since and has actively traded binary options since The information contained above may have been prepared by independent third parties contracted by Nadex.
In addition to the disclaimer below, the material on this page is for informational and educational purposes only and should not be considered an offer or solicitation to buy or sell any financial instrument on Nadex or elsewhere. Please note, exchange fees may not be included in all examples provided. View the current Nadex fee schedule. Nadex accepts no responsibility for any use that may be made of these comments and for any consequences that result.
No representations or warranties are given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk and any trading decisions that you make are solely your responsibility.
Trading on Nadex involves financial risk and may not be appropriate for all investors. Past performance is not necessarily indicative of future results. Nadex contracts are based on underlying asset classes including forex, stock index futures, commodity futures, cryptocurrencies, and economic events.
Trading can be volatile and investors risk losing their investment on any given transaction. However, the design of Nadex contracts ensures investors cannot lose more than the cost to enter the transaction.
Nadex is subject to U. Fill out our online application in just a few minutes. Stop-Order Slippage Many traders had issues with the use of stop orders Monday. The Dreaded Margin Call If traders chose on such a stressful day to venture out into dangerous waters, they may have found themselves in undesirable situations, having to exit a losing position or getting a dreadful margin call.
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