Pairs Trading – Stockpair Trading With Pair Options

Pairs Trading

binary pairs trading with optionsWhat is pairs trading? There is more than one kind of pairs trading but in this article we will be discussing Stockpair pair options trading. Pair options were first introduced to the retail markets with the official launch of Stockpair in 2010. Since that time pairs trading with options has rapidly gained in popularity and mainstream acceptance by the trading community. A predictable result of this popularity with traders has been the spread of pairs trading beyond just the Stockpair platform. Many of the most popular binary options brokers have incorporated some pairs trading capability into their binary options platforms. However, the pair options offered by these brokers are a bit different from those offered by Stockpair.

pairs trading with stockpair binary pairs

Pairs Trading – Pair Options With Stockpair

All varieties of pair options contracts at the various brokers share some fundamental characteristics which make them “pair options,” of course. So before getting to the specifics of each contract type let’s look at a general overview of what these instruments are all about.

what is pairs trading with stockpair pair options

Pairs trading is the simplest means of trading on  the relative performance of a “pair” of underlying assets. Most often the “paired” assets will be similar or from the same sector. And, because it is only the relative performance that matters, pairs trading is a completely market neutral form of trading. Simply meaning that overall market conditions are irrelevant to the outcome of your trades. You can make money on up or down markets with equal ease, it makes no difference. That’s pairs trading in a nutshell, but don’t worry we’ll be going a bit deeper than that. But first some highlights…

  • Entirely Market Neutral Instruments
  • High Returns Of Up To 350% Per Trade
  • Precise Risk Management
  • Extremely Simple To Learn & Trade
  • Great For Hedging Other Instruments
  • Simple “Standard Deviation” Pairs Trading Strategies
  • Smaller Than Usual Drawdowns

I think that those are probably the main and most important highlights of pair options trading. Certainly there are others, but you will discover them on your own easily enough if you decide to try pairs trading. And some will apply more to one variety of pair options contract than another, so you’ll have to play around a bit. Because they are the simplest form we’ll first go over the type of pairs trading that you will find at brokers that specialize in binary options. That is, everyone besides Stockpair.

pairs trading strategies with binary pairs at stockpair

Pairs Trading With Binary Options Brokers

The image above was taken from our personal trading accounts at one of the popular US binary options brokers. As you can see from the images, both brokers treat their pair options contracts just like their standard high/low binary options contracts. And this is true across all the brokers that currently offer some pairs trading capability. This is very similar to, but not exactly like the “Fixed” variety of pair options offered by Stockpair. We’ll get to those shortly. This variety is quite simple and they are very similar to a forex trade in most ways. The only major difference is that the assets paired are stocks and commodities instead of currencies.

Stockpair Pairs Trading Examples

Stockpair, as the name implies, specializes in pairs trading. They were the first to bring pair options trading to the retail sector. As such they have a unique and proprietary trading platform that was built around the idea of pair options. They later added binary options as well and are a strong competitor in that area too. Stockpair is the undisputed king of pair options trading and they do it extremely well. Unfortunately, they no longer accept US traders. But they do accept clients from most EU countries.

Fixed Pair Options At Stockpair

As we mentioned earlier, the fixed variety of pair options are very similar to the standard high/low binary option contract. Which is why binary brokers were able to incorporate at least limited pairs trading into their platforms. Nevertheless, Stockpair still does it better and they are a little different, so let’s take a closer look.

pair trading strategies with binary pairs

 

Stockpair pair options trading offers more asset variety and features than the pairs trading offered by other binary option brokers. They also offer a much better expiry selection. With ranges from 5 minutes all the way up to 150 days! They generally offer higher return rates on their fixed pairs than the other brokers as well. But not always. With these contracts performance is measured only from the time of purchase forward, until expiry. Let’s look at a quick fixed pairs trading example.

Fixed Pairs Trading Example

To simplify things we’ll use the stocks from the image above for this fixed pairs trading example. Lets say our hypothetical trader believes that Google is likely to perform better than Facebook over the next two weeks. Nothing that has taken place before now matters to our trade. As soon as we purchase our “put” fixed pair option on FB/GOOG their performances are set equal to each other.

1) Purchase of Put Fixed Pair Option for $100 on FB/GOOG pair
2) Fixed Pair Offering Returns of 84%
3) Performances Are Reset By Stockpair To Equal 0.00%

Now let us further assume that our hypothetical trader was correct. After announcing a positive earnings beat after markets close on Friday, Google stock soars during Monday’s trading. Fast forwarding to the end of our two-week expiry window we have the following results.

1) Facebook Stock Has Gained 1.73% From Time of Purchase to Expiry
2) Google Stock Has Gained 2.32% From Time of Purchase to Expiry
3) Meaning Google Outperformed Facebook by 0.59% Over the Period
4) Which in Turn Means the Trade Finishes ITM For a $184 Return

pair trading strategy example

Floating Pair Options At Stockpair

Floating pair options are only available at Stockpair as far as we know. This type of pairs trading is the more “exotic” of the two pair options contract types. These instruments can offer returns from just a few percent, all the way on up to over 350%. There is a lot of flexibility and room for pair trading strategies with these contracts. They are what made Stockpair a star originally.

With floating pair options contracts performance is measured over a fixed period of time. They do not reset at the time of purchase. This allows for “floating” return rates that fluctuate with the difference between the two assets performances. Which sounds more complicated than it really is. These contracts are only available with three expiry windows though. They are offered for a day, a week or a month. Performance is measured over the whole of those periods. As a result divergences can grow quite wide.

stockpair trading strategy example

 

Floating Pairs Trading Example

Once again we’ll use the trade image above for our example to keep things simple. In this example the expiry window for the floating pairs trade is one day. And this image shows a couple of hours into the day. At this point RIO had performed significantly better so far that day. Therefore RIO had the better chance of finishing the day as the dominant performer. Our hypothetical trader believes that RIO is almost certain to maintain its lead throughout the day. He is happy to take an easy 27% return. Not bad for such a “sure thing.”

1) Prior To Purchase BHP Had Lost 0.73% So Far That Day
2) Prior To Purchase RIO Had Lost 0.26% So Far That Day
3) So RIO Had OutPerformed BHP by +0.47% So Far That Day

For our newly opened trade expiring at the end of the day to finish as a loser BHP would need to outperform RIO by 0.48%. And it would have to happen over the course of the rest of this day. Certainly possible but very unlikely given the circumstances. And in fact our trader was correct. BHP did not rally to overtake RIO in the last half of the day. This trade then finished solidly ITM for a 27% payout. A return of $127 on our $100 investment. Not a huge gain. But also not bad for such a high-probability trade. It is that kind of flexibility that makes these options so useful and fun to trade.

what is pairs trading with binary pairs

Pair Options Trading Introduction Conclusion

That’s pretty much it for a brief introduction to pairs trading. We will also be publishing some in-depth pair options strategy material in coming months. Stay tuned for that. We have really enjoyed pair options trading ever since we first tried them. This was while doing a review on Stockpair several years ago. Unfortunately, as US traders ourselves we can no longer trade at Stockpair, and our favorite US broker, discussed here in our Raceoption review, unfortunately does not offer Pair Options. But most of the rest of the world is still welcome.

US Binary Options Brokers | Best US-Friendly Brokers 2018

raceoption-top-us-binary-options-brokerFinding the best US binary options brokers is not the relatively easy task that it once was. Traders living in the US have much more limited options these days. When we began trading binary options back in early 2009 there were less than a dozen binary options brokers. And all of them aggressively competed in the USA market. Unfortunately, due to regulatory conflicts which make it extremely difficult to work in the United States, this is no longer the case. As a result there are far fewer brokers serving the US market now than in 2012.

Binary Options USA From 2012-2018

Between 2013 and the beginning of 2017 many of the largest and most popular brokers began dropping US clients. And then they eventually stopped serving that market altogether. The number of brokers in this industry has grown from less than a dozen to well over 200 now. Yet with these regulatory issues it is more difficult than ever for USA traders to find a reliable broker to trade with. It takes a bit more work these days to sort through everything. To wade through the bad and average to find only the best US binary options brokers.

*** Top US-Friendly Binary Options Brokers 2018 ***

#1 – Raceoption | Featured US Binary Options Broker | Raceoption Review

us-friendly binary options broker with forex and cfds raceoption

#2 – Videforex | US-Friendly Forex/CFD/Binary Options Broker

US binary option broker videforex

#3 – BinaryCent | Popular Crypto Binary Options Broker

binarycent us binary options brokers

#4 – BinBotPro | Best US-Friendly Binary Options Robot

best us binary options trading robot

#5 – OptionRobot | Popular Global Binary Options Robot

popular binary options usa trading robot

US Binary Options Brokers – Myth or Reality?

As far as true USA binary options brokers — as in actually based in America — there is only one choice. NADEX is it. NADEX binary options trading, however, has little in common with standard binary options trading. Very experienced traders may want to give them a look though. NADEX’s trading platform has more in common with “vanilla” options trading than standard binary options trading. It’s not the kind of binary options trading offered by other brokers. Very experienced traders may find it to be a great choice though. They do offer a free demo account you can try. So you may want to check it out. If only for fun or out of curiosity.

nadex binary options usa trading with a free nadex demo account

Regulated US Binary Options Brokers

The only true US-regulated and US-based binary options broker is NADEX. Any other broker that tries to claim otherwise is lying. You should be very skeptical of any of their claims going forward. Hopefully this situation will change at some point in the future. Which is likely if binary options continue to become more popular and mainstream. But regulation is a pretty poor proxy for reliability. More than a few regulated binary options brokers have gone bust over the years. These brokers took their clients money with them in most cases. And unfortunately, regulation did not help the people who lost money in any way. We have always believed that reputation and customer feedback are the more important and reliable indicators.

Why They Are The Best US Binary Options Brokers

The only true US-regulated binary options broker is NADEX. For US binary options trading enthusiasts it really just comes down to who the best USA binary options brokers are. EU-Regulators do not regulate any of these brokers. These brokers cannot legally accept US traders. US regulators will often try to sue them if they offer services to US-based clients.

This policy unfortunately does not have the (supposed) intended effect of protecting US consumers and making trading safer. It has actually worked to drive out the larger and more established brokers. Those brokers cannot afford to cross US regulators who would then complain to their own regulators. That has then created an opportunity for less scrupulous “fly-by-night” type operators to take advantage of. Hopefully this will all work itself out as the industry matures. But for now, it is what it is.

We spent several weeks searching for any and all binary options brokers who would still accept US traders. For the brokers we found who would accept us we opened small accounts with them. We then gave these brokers who would still accept US traders a shot for a 30-Day “trial period”. We opened our accounts with $200 deposits (the minimum for most brokers). And then we put them to the test for 30 days. Based on our experience in the industry we put together the list above. These are the top USA brokers still serving the market in 2018 that we know of.

Conclusion

We have presented the best brokers still serving the binary options USA market in the list above. All of them also accept clients worldwide. Not just from the US. Most brokers that accept US clients also accept traders worldwide. But most brokers that accept clients globally DO NOT accept US traders.

What is important for US traders is finding a broker that is reliable. And also offers an outstanding platform. We are confident that you would find that the brokers included in this list meet those high standards. If you have any experience with a US-friendly binary options broker we would love to hear about it! Good, bad, or ugly! Thanks!

Your US Binary Options Brokers Reviews

Please feel free to share any of your own experiences below. With any brokers serving US traders which you may have experience with. You can share your experience by commenting below or by using our contact us form. We always love to hear your thoughts!

One-Touch Binary Options – Weekly Binary Options Trading With Example

The One-Touch Option – Weekly Options Trading

one touch option risk vs. reward in weekly options trading image One-Touch binary options, like Ladder Options, are very different than other common varieties of binary option contracts. For one thing they can only be traded during the weekends when global markets are closed. For another they can have returns that exceed 100%, in some case by quite a lot. The greater the risks you take, the greater your potential rewards will be. These one-touch weekly options contracts have become fairly popular in the last couple years. And they are now being offered by many brokers in the industry. Return rates can vary widely among brokers though so be sure to look at that when considering opening an account.

What Are One-Touch Binary Options?

A type of exotic option that gives an investor a payout once the price of the underlying asset reaches or surpasses a predetermined barrier (Source: investopedia.com).

One-touch options are also frequently referred to as “Touch/No Touch” options as well. These options are generally available on weekends only and have an expiry window that runs through the following week. Generally expiring on Fridays at the market close. If your one-touch option gets to that point though then you have lost. This is because if at any time during the week that option were to reach the target level, the contract would be immediately closed out, and your account credited with the profits due you. As far as what those target levels are, that is predetermined by the broker based on market conditions and historical data. Sometimes you are presented with more than one choice of level. But most often your only decisions are the direction (call/put), and the amount to invest.

one-touch binary options

One-Touch Weekly Options Returns

As you can see from the image above the payouts on these one touch options can be very high indeed. In the case of the shown here (where our personal trading account is) you can find returns as high as 600% in some cases. A maximum return of 500% is more common, but a few other top brokers offers returns up to 600% so just do your homework before jumping in to find the best returns. So now that we know what one-touch binary options are, how do people go about trading them?

How To Trade Weekly Options – One Touch Option Example

Most brokers offer weekly options trading contracts in “units,” of $50 each (though we have seen a couple with $25 units). So clearly the minimum trade amount in these contracts is the cost of one unit, $50 in our example from. The returns offered will be based on market conditions (volatility) and the distance between current and target price.

one-touch options - weekly binary options contracts

Luckily, learning how to trade weekly options is a breeze. Lets say that we are bearish on Gold at the moment, and also believe that there is a reasonable chance it goes down to test that $1200 level next week. These beliefs therefore lead us to purchase a put touch option contract for two units = $100 invested. This option will have until next Friday now to reach that target level of just under $1200 USD. Because the gap at the time of purchase is relatively large — at around $50 — the return rate offered is also relatively large at 430%, or $530 on our $100 investment.

If at any point the following week the price of Gold touches that $1190 price level then our trade is ITM. The trade will be automatically closed out by the broker and our account credited with our $530 return. What a deal eh? But if our analysis is wrong and the Gold price never reaches that $1190 mark then the trade is OTM. We would lose our full invested amount. There are no refund rates offered on one-touch binary options. They are truly binary in nature.