As news continues to flow in regarding the forex side of things on the CHF crash, I would like to inform readers a little of what happened on the binary side. I took some time to analyze how the participants of the binary industry reacted to this event.
About 10 minutes before the news hit, there was a flurry of call options being bought as traders expected the SNB to defend it’s currency. What truly spiked my curiosity was a minority of put option positions. Upon further investigation I found out that those who were buying put options had long positions on EURCHF, FX-side.
An excellent showcase of using binary options as a hedging tool. Though, we all know what happened in the end. Despite losing, those traders that were buying call options did not end up losing more than what they invested in their positions. A large majority of those who were interested in the CHF pairs continued trading through the period as the prospect of a negative balance is completely annulled in binaries.
Forex CHF traders did not fare well as a whole, with the hybrid binary/forex traders being somewhere in the middle depending on their risk management strategy.
Boosting Profits in Low FX VolatilityGo to article >>
Claims that binary options are riskier than FX or akin to gambling were put to the test, and binary options passed the SNB test with flying colors. The risk, as we all know, was not limited to retail traders, it was the brokers that ended up footing the larger part of the bill due to their clients ending up with negative balances and owing money to their liquidity providers.
From the binary option side, no such risks were present because, as mentioned before, it is not possible to owe your binary broker more than what you invest. Fixed-risk, fixed-profit and no credit (leverage) is why binaries shine in this situation. Should the situation have went the other way with a strong CHF appreciation, what was anticipated to happen, there would have been more risk to the broker, but with a proper binary platform that allows full control over the risk and solution, it would have been negligible.
This is why you must be prepared to deal with any situation and be able to react fast should things spiral out of control (though preventative measures are better than corrective). The best way to do this is arm yourself with technology that does not hold you back.
I was asked before, “What is riskier, binary options or Forex?” As I mentioned, it’s hard to compare two different instruments in terms of risk, but in this event, we can see that FX was riskier to both brokers and their traders. There are hard lessons to be learned from the SNB decision, but where there are losses, there is also opportunity, and I am eager to see what this year brings us.