Some traders may know this principle from the stock market, now it will also be applied to the trade with binary options. We are talking about the so called pair trading where high returns can be the result of the right choice. The first broker introducing this form of trading was Stockpair but in the near future; a few more brokers may offer their clients the opportunity to do pair trading. After all; the structure of these pair options is similarly easy like with traditional binary options, so they match perfectly in the supply- but -when analysing- investors have to consider a few particularities in order to really make profits.
Basic principle is easy to understand
Basically; pair trading is not a completely new type of investment. In the stock market there have been existing a few of these trends for a while. The structure is the following; The shares of two companies are traded against each other whereas the companies usually origin from the same branch. So, influences that may affect a whole branch and therefore could cause a considerably different fluctuation of the share are excluded.
Those who do pair trading with conventional options ensure themselves buy-options of a share. In contrast, for the other companie’s commercial papers sell options are purchased.
As a consequence, a certain neutrality is made possible. Investors who predict correctly which share – relatively spoken- will develop better could make interesting profits by doing so.
Up to now it, was necessary to buy normal options in order to follow such a strategy.
New supply transfers pair trading to binary options
Thanks to the recently introduced offer of Stockpair it is now possible to do pair trading with binary options, too. With this new opportunity the buyer of an option predicts that the course of one of the companies is going to develop better than the other one within a certain time period having been agreed before. Such a fixed pair option has only 2 possible outcomes, so we are talking about a binary option by definition.
However, there is a significant difference to conventional binary options.
Usually the trader predicts that the course of the underlying asset is going to rise or fall within a certain time period. In contrast, the fluctuation with pair options does not matter; both underlying assets can develop in a positive or negative way. The only thing being important for a successful trade is that you bank on the company of which the worth compared to another concurrent of the same branch will develop better. For the analysis only the data of both companies matter- or of other underlying assets.
Other aspects do not differ compared to binary options. The payout quotes with pair options are definitely comparable and the expiry time does not always differ. The trader chooses a certain pair option, e.g. British Telecom and Vodafone, analysis the data of both companies and decides which stock course will develop better at the end of the day or the trading week.
Those who don’t want to analyse too much data day by day receive an interesting alternative with pair options.