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Which gives us a slightly bad conscience, since those options are widely understood as a scheme to separate naive traders from their money. And their brokers make indeed no good impression at first look. Some are regulated in Cyprus under a fake address, others are not regulated at all. Binary options, in their most common form, are very different to real options. They are a bet that the price of an asset will rise or fall within a given time frame. If you lose, you pay the stake minus a possible loss payout. However this conclusion is a fallacy.
It can in fact be of advantage for the broker to offer a payout that allows you to win, as long as most other traders still lose. A broker has not the freedom of arbitrarily reducing the payout. But why would you want to trade binary options anyway, when you also can trade serious instruments instead? But aside from tax advantages in some countries, there is one single compelling reason that might make a binary options trading experiment worthwhile. Profit and trading cost of a binary option are independent of the time frame. So you can trade on very short time frames, which would be difficult, if not impossible with real options or other financial instruments.
So, smaller trading costs on low time frames are the obvious benefit of trading binary options. With all the side benefits of low time frames, such as more data for backtests, and shorter drawdown periods in live trading. But how can we take advantage of that? There are three problems to solve. But be aware that prices on small time frames are strongly feed dependent.
Find a way to trade automated. Binary brokers often do not want you to do that. Consequently most do not offer a platform or API for automated trading. But they all have a web interface. Find a broker that’s halfway honest. At least one that allows you to really collect your gains.
If you gave it to me, it’s mine. Make test withdrawals before you deposit large amounts. However it’s the messy methods that sometimes offer the best opportunities. Blackjack strategy and with a method to estimate the value of warrants, both also considered messy and hard to calculate at that time. Step 1: The system A price curve is no random walk. At least not all of the time.
Long time frames are often dominated by trend, short time frames by mean reversion. The setup establishes a 5 minutes bar period, which is the time frame of our bets. We use 20 WFO cycles and let the optimizer use all CPU cores but one. This way the training run takes about 5-10 minutes for 5 years data. The time period for determining the High and Low is the only system parameter that we optimize. Step 2: Automatizing How do you let your script automatically enter a bet at the right moment?
This is a technical issue unrelated to trading, but it comes up whenever you have a broker with a web based platform and no proper connection for automatizing. You now only need to glue together your trading script with the button clicking script, and adapt the latter to the website of your broker. This is left as an exercise to the reader. Step 3: The broker Of course I don’t want to recommend a particular binary options broker. Finding a suited broker is, also, left as an exercise to the reader.