Trading Uncertainty with GBP/USD during EU Exit Negotiations

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Trading Uncertainty with GBP/USD during EU Exit Negotiations  

Gail Mercer/ Founder of TradersHelpDesk.com

 

On March 29th, the Brexit becomes official and negotiations will begin for the UK to exit the European Union.  This historical move has traders on edge.  According to the CFTC data, there is a record level of short positions on the Pound.  If all of these short positions decided to cover, then the Pound may go up.  Additionally, a lot will depend on the tone that is used for the negotiations. 

A constructive tone from both sides would increase the likelihood for the pound to go up, while a negative tone from one side or both may result in new lows.  One thing for sure is the Brexit negotiations will not likely be a one day trading event but more than likely a very volatile situation for months to come.  With traders on edge about how the negotiations will go, the likelihood of volatility also increases because even the smallest comment may create an increase in volatility.  When volatility rises, so does risk -- unless the trader chooses to trade with binary options.

Nadex Binary Options are a limited-time based trade that limits risk and provides a maximum payout of $100 per contract.  When trading binary options, the trader selects a risk level that they can accept using either an Out of the Money (OTM), At the Money (ATM), or In the Money (ITM) binary.  Once the trade is executed, the trader cannot lose more than they paid on entry. 

Plus, when trading with Nadex Binary Options, the trader may choose to hold the position to expiration or to close a position out early, prior to expiration to minimize losses, if the market turns against the trader or take an early profit if the market is trading in their favor.

If the trader opts to hold until expiration, then the Nadex’s underlying expiration price value simply needs to expire greater than the strike price if long, or expire equal to or less than the strike price, if short.

For example, here is a 4-hour chart of the GBP/USD with the available weekly binary options, which expire at 3pm New York time on Friday, March 31, 2017.

 GBP/USD Chart

The strikes and prices for each binary are listed on the right-hand side of the chart.  When buying the binary option the risk is listed in the blue box.  The profit potential is calculated by subtracting the risk from the maximum payout ($100).  When selling the binary option, the profit potential is shown in the red box and the risk is calculated by subtracting the price shown in the red box from the maximum payout ($100).

A trader with a bias to the upside, may buy any combinations of the following weekly binaries:

  • GBP/USD > 1.2575
    • Risk $54.75 and profit potential $45.25
  • GBP/USD > 1.2625
    • Risk $36.75 and profit potential $63.25
  • GBP/USD > 1.2675
    • Risk $23.25 and profit potential $76.75
  • GBP/USD > 1.2725
    • Risk $14.50 and profit potential $85.50

A trader with a bias to the downside, may sell any combination of the following weekly binaries:

  • GBP/USD > 1.2575
    • Risk $55 and Profit Potential $45
  • GBP/USD > 1.2525
    • Risk $37 and Profit Potential $63
  • GBP/USD > 1.2475
    • Risk $24.25 and Profit Potential $76.75
  • GBP/USD > 1.2425
    • Risk $14.25 and Profit Potential $85.75
  • GBP/USD > 1.2375 or GBP/USD > 1.2325
    • Risk $9.75 and Profit Potential $90.25

Unlike forex, if the trader anticipates a move up and then back down, they  may do a combination of long and short binaries at the same time and simply take profits early on one and allow the remaining binary to expire, if price is moving in the trader’s direction.

That’s the thing about binaries – there are so many potential combinations and the trader knows exactly how much the trade can profit or lose on entry.  This provides peace of mind during times of turbulence because anything can happen in the markets.  Knowing the total risk exposure is critical because in a flash the market can move against the trader.

Nadex offers a free binary option demo account and weekly educational webinars to help traders learn how to trade binary options.  To sign-up for a free demo account click here or register for the free educational webinars by clicking here.

Nadex Risk Disclaimer

Trading on Nadex involves financial risk and may not be appropriate for all investors. The information presented here is for information and educational purposes only and should not be considered an offer or solicitation to buy or sell any financial instrument on Nadex or elsewhere. Any trading decisions that you make are solely your responsibility. Past performance is not indicative of future results. Nadex instruments include forex, stock indexes, commodity futures, and economic events.

Nadex binary options and spreads can be volatile and investors risk losing their investment on any given transaction. However, the limited-risk nature of Nadex contracts ensures investors cannot lose more than the cost to enter the transaction. Nadex is subject to U.S. regulatory oversight by the CFTC.

 

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