Type of Binary Options: Ladder
As part of our series on binary options bets, in this article we are going to discuss the Ladder binary option trade. This new type binary options trading, which was introduced by IG Markets, is starting to get popular among traders.
So, why the name “Ladder”? A Ladder option is a type of binary option trade where a trader is offered a range of price levels at equal intervals that look like a ladder for the trade to finish higher or lower than, at the closing of the trading day. To put it in a simpler way, a ladder binary option indicates that the market needs to rise beyond a certain price level, after a certain period of time while the trade is active.
This also means there are many price levels to be set and many periods to be set. These price levels are arranged in a way that looks like the rungs of a ladder. In order to for a trader to win the trade, his or her asset must have ‘climbed the steps’ at certain times to make the trade in the money.
Suppose that the EUR/USD is trading at 1.2789, and you wish to trade a currency ladder binary trade with your broker. This ladder trade is performed in 3 price levels that are: 1.2750, 1.3023 and 1.3060. How can you win this trade and gain profit?
When customizing your trade, the first thing you need to do is pick an expiry time. In this example we will set to 2300hrs. Then, you should take a look at the array of the trade in this way:
- EURUSD to be above 1.2750 1.20 (20% payout)
- EURUSD to be above 1.3023 1.35 (35% payout)
- EURUSD to be above 1.3060 1.50 (50% payout)
This can be understood as below
- For trade number 1 to be successful, EURUSD has to close ABOVE 1.2750 (i.e. > or = 1.2751) by 2300hrs. The trader will then get a 20% payout.
- For trade 2, EURUSD must be > or = 1.3024 i.e. must close ABOVE 1.3023 by 2300hrs for the trade to be successful. The trader will then get a 35% payout.
- For trade 3 to be successful, the EURUSD must close ABOVE 1.3060, i.e. > or = 1.3061 by the expiration of the trade at 2300hrs. This will guarantee a 50% payout.
The trader has to analyze carefully how the price action of the EURUSD will look like on the trading day and choose from any of the ladder trade options provided.
There is a strategy for trader in ladder trade called ‘pivot point strategy’. The first thing to do when using this strategy is plotting the pivot points on the charts of your chosen asset using a pivot point calculator. This will be displayed in the form of 3 lines of support (S1, S2 and S3), one central pivot point and 3 lines of resistance (R1, R2 and R3). You can see how the pivot points look like in the chart below.
Then you can use these pivot points as guides to what the price would do during the trading day. The trader could use a 1-hour chart for analysis because we are using an intraday expiration time. Generally, you would be looking at the prices which are just above resistance levels that have been breached to become intraday supports.
With those points in your mind, you are able to pick ways to set your trades and use these levels as a benchmark to set your ladder rungs. You should be setting your ladder price levels at around 5 pips above the required levels. Doing trade that way will give your trade a better chance of success.
You should practice making simulated trade calls via a demo platform, which can be downloaded at FxPro. This is a Forex broker who also provides trading in crude oil, index futures and spot metals; so it is quite a good place to practice trade calls.