Binary options trading and forex do have a lot in common. This is why many people wonder if there are stop loss orders for binary options as well. Stop loss orders is a mechanism that is in place in forex trading to help the trader avoid too much loss.
It is an order that a trader places on a particular position. If the price of a currency reaches or falls below a specified number, this triggers an automatic trade. The trader’s currency is then immediately sold to prevent them from losing any more money.
This is typically used for long positions, especially when the trader is unable to monitor the position themselves. So, can the same concept be applied to binary options trading? Let’s take a look:
Binary Options Doesn’t Offer Stop Loss Orders
The simple answer is that no, binary options doesn’t offer stop loss orders. This is not a mechanism that has been built into this particular type of trading. This is for many reasons. One of the main causes, however, is that binary options trades tend to be a lot shorter than forex ones.
On average, binary options trades last just a matter of minutes. With forex, however, these trades can last for months on end. This can make it a lot more difficult for the trader to keep an eye on the market price at all times. This is what oftentimes can make binary options seem like a riskier venture. As there is no way to curb the loss, you stand to lose your entire investment.
Is There an Alternative
This does not mean that you are completely out of choices with binary options trading. This is because there are instances when brokers give you the opportunity to minimize your loss. Now one of the concepts with stop loss is that you don’t prevent the loss of money but rather minimize it.
Similarly, with binary options, the broker will allow you to exit a trade before it expires. Due to the duration of the trades, you can tell quite quickly whether the trade is going to end in or out of the money. In the event that it appears that you are wrong about your position, you can tell the broker that you want to back out. Of course, you do have to forfeit a considerable amount of your initial investment. At the same time, it does mean that you don’t lose everything.
How You Can Use This Opportunity
Now, the first thing you will need to do is to find a broker that will allow such an early exit. This is not something that is offered by every broker. Therefore, you will need to conduct some research on the matter. However, that is not enough. You will also need to compare the rates that each broker is offering you. The more money that you can get back, the better. This will considerably add to the profits that you make from the trades that you do manage to win.
This is the slightly more complex answer to “can stop loss orders be applied in binary options”. While you may not be able to use the same mechanism as forex trading, you do have choices.