Binary Options has recently gained popularity and is now, a flourishing industry. Some years ago when it was newly introduced to traders, there were only a few types of trades available and during this period most of the brokers would offer only a single trading option. The classic ‘High/Low’ trade was the type of trade commonly offered by the brokers. With the increasing popularity of Binary Options, One Touch Options, No Touch Options and Range or Boundary Options also gained exposure and were added by more and more brokers. Numerous other trade options like 60 seconds options also became popular.
As with each passing day new types of trades are being introduced, and Ladder trade is one of these new Binary options. Read on to find out all about Binary options ladder trading.
What is ladder trading?
This trade was offered first by IG markets and since then it has been seen on more than a few broker websites. The name ladder suggests that there might be intervals present in the strike prices, which have been included.
There are numerous scenarios when a trader wishes to take a trade but hesitates as he/she knows that there might be a catch to it which he/she will realize later on. There are also instances when a trader wishes to have gained a part of the profit, since the trade was successful partially. In some cases if the partial trade offers chances at further profit a trader would definitely want to take a chance and try to go along with the deal.
Ladder trade allows you to choose an asset and offers three different expiry times along with three different strike prices. Many of these brokers allow the trader the chance to fix these expiry times and strike prices. It is similar to climbing the rungs of a ladder so as the trade progresses through the strike prices that have been set by the trader; he/she receives payout of a partial amount.
The amounts offered by the broker as payout will be determined on the basis of the riskiness of the trade and strike price. In case the trader sets closer strike prices that lie within a brief period of time as expiry date the chances of the broker offering lower payouts are increased. In case the time period covered is huge and the difference in the strike prices is wider, the trader might be offered larger payouts.
The payouts offered might allow you to generate profits however; these percentages are set by the broker depending upon the risk of the trade. In case the broker perceives the trade to be too low then the payouts are smaller. However, if the trade is difficult then it is not possible for the trader to actually win in reality.
Advantages of ladder trading
This type of trading just offers another advanced way of trading. One is required to use his/her expertise of binary options trading so that he/she is able to make a good decision regarding the strike prices. A lot more power is in the trader’s hands, since he/she can set the strike prices. Only traders who have experience in trading should opt for this type of trade, since a novice is not skilled to handle the pressure as well as make decisions keeping in mind all factors governing the trade.
This type of trade should be used when the catch that the trade offers is predictable. In case the pivot areas around the strike prices are known it becomes easier for one to make the final decisions about the interval as well as the strike prices. A novice trader should not waste time with this type of trade, since it needs expertise as it is quite intricate.