- What is it in simple words?
- Meaning of expiration time selection
- Types of options by expiration time
- Relationship between strategy, assets, timeframe and expiration time
- How are expiration and timeframe related?
- What expiration should a beginner choose?
- How can the expiration date depend on the strategy?
- So, let's sum up. What are the expirations?
- What are the most popular expiration dates?
- The most optimal expiration time
The expiration time of a binary option is the period during which the purchased contract is valid.
What is it in simple words?
In simple words - expiration level: this is the time of the contract, (the time when the rate is valid). After this period, the result of the forecast is checked and the outcome of the operation is determined: in plus or minus.
The option time can be a period of 30 seconds or 5 or 10 minutes, as well as a time period that lasts more than a day. All brokerage platforms have different expiration times.
Most popular trading platform for binary options provides a sufficient choice of expiration for comfortable trading.
Most popular and offered by most platforms: 60 seconds, 2 minutes, 5 minutes, 15 minutes, 30 minutes, 1,2,3,4 hours, one day, one week, one month. Although there is a much greater variety.
Meaning of expiration time selection
The choice of expiration time is an important component of the successful use of tools when trading options, especially when you are playing for high stakes.
In some situations, choosing an expiration time equal to 30 minutes, you make a profit, and choosing 60 minutes, you lose. It is important to take into account the ratio of the traded timeframe to the expiration.
By correctly combining tools, strategies and expiration time, the trader makes the most conscious bet and contributes to the formation of his own method. After all, in the future it can become the key to making the most profitable transactions.
Types of options by expiration time
In the BO market, there are different categories of expiration dates. In accordance with this, options are divided into the following types:
1. Short term (turbo options) – from 30 seconds to 5 minutes. Traders participating in short-term options and concluding the maximum number of transactions during the trading session are called scalpers, and the trading operation is scalping.
The advantage of such options is an unlimited number of transactions during the session, as well as an increased percentage of profit assigned by the broker. However, this type of transaction is associated with the greatest risks, since market noise can occur in price fluctuations that interfere with the identification of short-term trends.
Of course, it is best to scalp using the martingale technique, then you can really get super profits, but you need a large deposit.
2. Intraday trading. Contract execution time - 5-30 minutes. The advantage and difference from the previous type of options is that in this case it is possible to use not only charts using strategies, but also to observe the dynamics in a larger range of changes.
The stability of operations is associated with the ability to more accurately predict the situation, because you have more time to better analyze the market situation and more accurately see the signal for your chosen strategy.
The number of transactions during the trading session is also not limited, and the percentage level set by the broker is quite high. Market "noises" that influence the decision are still present.
3. Options from 1 hour to 24 hours (medium-term options). With such an expiration time, the platform tools come to the aid of the trader: indicators, charts, analysis strategies.
The number of transactions during the trading session is limited. This strategy is suitable for situations where you need to reduce the risk of losing. A news flow appears at the option participant's hand, working with which one can understand the mood of the market.
You can use the following tools:
— fundamental analysis,
— technical analysis.
The forecast, taking into account all the data, is the most accurate, which allows you to maximize profits.
4. Long-term options last from one day to a year. Participation in such transactions requires experience and detailed knowledge of market analysis methodology.
The choice of a long expiration time should be made when the deposit is a significant amount, since it takes a long time to wait for the results of the forecast.
The disadvantage of this type of operation is that not all brokers support the possibility of long-term trading on their sites.
Relationship between strategy, assets, timeframe and expiration time
Timeframe - this is the time for which one full candle is formed on the chart. Expiration is the time from opening to closing a trade.
It is important to note that when trading binary options, you do not need to set stop loss and take profit.
The trader only predicts at what level the price will be after a certain period of time, and then, depending on the forecast, buys a Put or Call option.
How are expiration and timeframe related?
Many beginners confuse expiration and timeframe values, and also do not see any correlation between these two values. Because of this, they make the worst mistakes.
For example, they trade on an hourly chart with an expiration of several minutes. Such trading turns into a “Guess” game and sooner or later the trader loses his deposit.
In general, it is better to trade options on a candlestick chart, as it provides more information about the dynamics of price movement. The expiration time will depend on the size of the timeframe.
For example, the M5 timeframe says that it takes exactly 5 minutes to form one candle. After conducting a candlestick and technical analysis of the chart, we can assume at what level the price will be in a few candles.
By multiplying this number of candles by the TF value (5 minutes), you can calculate the approximate expiration time.
For example, on the M5 chart, an uptrend is emerging, the price has confidently moved up. You can assume that after 5 candles the price will be above the current level.
In this case, the expiration time for buying an option will be equal to 25 minutes (TF∗number of candles until the end of the transaction).
For turbo options, you cannot take a chart of several hours as a basis, and use minute charts for long-term options.
The optimal combination of expiration time and the chart used is the difference between the first and second two timeframes lower.
For example, with an hourly expiration period, you should examine the chart for 15 minutes. For the daily period, you need to use the hourly chart.
The expiration value is always directly proportional to the timeframe value by an integer number. For example, when trading on a 5-minute chart, a trader can choose an expiration of 10, 15, 20, 25, 30 minutes, and so on.
If the work goes on an hourly interval, then the expiration can be equal to 1, 2, 3, 4 hours and so on.
It is strongly not recommended to set a non-integer expiration value, especially if it is less than the timeframe value!
For example, when trading on 5-minutes, you should not set an expiration for 1-2 minutes. Such a transaction is unlikely to be successful, because its duration is less than the formation time of one candle.
An accurate forecast of the price direction in such a small time period is unlikely. Any chaotic impulse of the quote movement can affect the result and lead to the fact that the deal will close in the red.
The main unspoken rule of binary options trading: the ratio between the timeframe and the expiration time must be an integral number. In this case, the values should be directly proportional to each other.
What expiration should a beginner choose?
Novice traders are advised to set the expiration time equal to 3-5 candles. This is a general rule, suitable for working with any currency pairs and on any timeframes.
The same rule is suitable for those who have not yet decided on a trading strategy and work according to the standard scheme.
How can the expiration date depend on the strategy?
- If your long-term strategy, and the investment type of trading is more suitable for you, then, obviously, the expiration date of the contract should be chosen appropriate for the event that you are counting on, for example, the end of the QE program in the USA according to your forecasts. Usually, options are used in this case. from a month or more.
- If you are more focused on medium-term tradingbased on technical analysis and “catching” trend movements, then the best positions for you will be for 2-3 weeks or somaybe a little less, depending on your predictions.
- For short term trading, according to ForTrader.org magazine experts, the expiration time of a binary option is best in a few days - up to one week. At the same time, as Forex traders often do, do not leave a contract for the weekend, because. sometimes, after the market closes, there are sharp changes in the situation that significantly affect the opening of instrument quotes on Monday.
- For intraday trading, which is usually characterized as intraday trading, it is logical to choose the expiration time of the option hour to trading day, when the activity of the day subsides, and the flat movement begins. By evaluating the outlook for the day, you can predict how it will end, or by evaluating the chances of a news release, you can predict the movement immediately after it.
- Ultra short trading (for turbo options) is characterized by trading within an hour or even for several minutes. By analogy with Forex, we can call such trading pipsing. This is the most dangerous type of trading, because. it is necessary to take into account sharp short-term fluctuations in quotations and market noise. In this case, it is better to focus on expiration 1-5 minutes.
So, let's sum up. What are the expirations?
- Ultra-short brokers call the period from 30 seconds to one hour;
- Short-term (turbo) is considered to be from 30 to 300 seconds;
- Medium-term - from 15 minutes to 2 hours;
- Long-term - the interval set before the end of the day (week, month).
What are the most popular expiration dates?
Traders trade binary options with a wide variety of expiration dates. Brokers offer trading from 30 seconds to several months. But at the same time, not every option is of interest.
But there are options for which most strategies are tuned:
- 1–5 minutes. Turbo Options a special method of short-term trading. And such traders are called scalpers in a special way. Many beginners are led by the possibility of earning every couple of minutes. But this method of trading is the most risky, since during short-term transactions the market is overflowing with trading noises that give false signals. No experience? Then it is better to choose a longer trade;
- Expiration time 15–60 minutes is also popular. If you are a beginner and at the same time long-term transactions do not attract you, we recommend choosing this exact expiration time. The amount of noise is much less than on turbo options, and you can make several deals per day;
- From one hour to the end of the day – the choice of many experienced traders! Of all three options, this one is less risky, as it manages to weed out most of the trading noise. But many traders are not attracted to waiting for the result for several hours. Therefore, such transactions do not enjoy increased interest.
The most optimal expiration time
If you want to enter into short-term transactions, choose indices or commodities as an asset. Usually their quotes move without much price fluctuations and are more stable. Therefore, it is much easier to successfully predict their further price movement.
Currency pairs are best used for medium and long-term transactions lasting from an hour to a month. This is due to the fact that the currency is often exposed to unpredictable fundamental data that affect the movement of quotes, albeit slightly.
But trading stock market instruments (stocks, etc.), it is better to set the expiration time on options from one week.
Making money on options in 60 seconds is real. But this requires a really effective strategy and experience. In this case, it is difficult to apply technical analysis, since the indicators will react to all false noises, which also will not allow building support and resistance levels. The best solution for this is candlestick patterns.
It is also problematic to apply news trading in short-term trading, since after the release of the news, asset quotes can be in a chaotic state for a couple of minutes. In addition, some brokers do not allow 60-second trades during the news release period, but 5 to 15 minutes is quite realistic.
If you are not confident in your abilities, choose an expiration time of at least 30 minutes, or better, from an hour.