This facility informs you when your binary options trades are currently ‘in-of-the-money’ before expiration. You then have the ability to prematurely close your positions and register a profit, albeit for a small commission. As such, you will discover that this tool can effectively lock-in your gains if trading conditions are unpredictable and volatile and you are concerned that price could suddenly retract sharply without warning.
For example, imagine that you have executed a ‘PUT’ binary option using Amazon as its underlying security; deposited $200; payout ratio of 80% and expiry time at 2.00pm EST. At 1.00pm EST, you observe that your position is ‘in-the-money’. However, the prevalent volatile market conditions are causing you concerns about potential price reversals. As your broker is offering a payout of 50% if you close your trade prematurely, you decide to play it safe by taking advantage of this ‘take-profit’ offer. As such, you collect a payout of $300 which includes your initial deposit of $200.
There are a number of binary options brokers that now support the ‘Take Profit’ feature although this concept is relatively new to the industry. As such, traders are advised to become totally familiar with the drawbacks and benefits of implementing this facility in order to maximize its usage. You need to acknowledge that exiting a trade early can help you either limit your loss or lock-in a profit. Brokers who support this feature normally allow you to take advantage of it right up to a few minutes from expiration. As such, you can delay your decision to almost the last minute.
Whenever you choose to implement ‘Take Profit’ you will effectively be selling your trade back to your broker. This action means that you will be forgoing the full payout rate in preference for a reduced one. If your position does finish ‘in-the-money’ at expiration, then your broker will benefitted by receiving the remaining percentage of the original payout ratio.
For example, envisage that you activate a binary option with a payout ratio of 80%. Five minutes before expiry time you decide to cash-in by accepting a return based on a reduced 55% payout ratio. As you would have sold your position back to our broker, this company will collect the remaining 25% should your trade finish ‘in-the-money’ five minutes later.
If your broker does support this feature, then details will be clearly displayed while your positions are active. For instance, the payout ratio and commission charge will always be visible in order for you to evaluate the merits of an early closure. You will find that the ‘Take Profit’ payout ratio will fluctuate as your trade progresses by generally increasing in value as expiration becomes nearer.
You must be totally aware that one of the negative attributes of this facility is that you will never collect the full payout ratio offered at expiration. However, by improving your skills and acquiring experience you can optimize your profits and minimize your risks by learning how to execute ‘Take Profit’ as close to the allocated expiry time as possible. However, you must also appreciate that accepting a smaller win earlier is often a wiser strategy than facing a total eventual loss.
As you must now be concluding, there are pros and cons to this type of trading. Basically, maximizing the benefits of using ‘Take Profit’ basically comes down to just how much risk you are prepared to take. Should you hold out for a maximum payout when prevalent trading conditions are volatile and unpredictable or should you cash-in early and safeguard your account?
If you are a novice, then you should always opt to minimize your losses as a top priority. As you gain in experience at implementing ‘Take Profit’ then you could carefully execute strategies that can help you extend your winning ratios. In essence, it will be the skills acquire over time that will eventually enable you to perfect your judgment when making these vital decisions.
If you think that this feature could play an important role in your long-term binary options plans, then you will need to locate those brokers that specifically support ‘Take Profit’. Very importantly, you must understand that should you opt for this course of action, then you will need to expend time to carefully monitor your trades throughout their lifetime. This is because you will need to assess very carefully all evolving developments in order to identify the optimum moment to close your positions and cash-in at maximum profit.