Expiration is the time when the price of the underlying asset of a binary option is fixed. It is the value of the exchange rate that determines the trader's win or loss, regardless of the type of contract.
The general definition of this word is often understood as the term of the contract, and the moment at the end of the term is called"cut-off". This is due to the fact that "odnoklassniki" - vanilla options, unlike binary options, the expiration time is standardized and drops to a week in minimum values. Therefore, on the "last day of life", the exchange specifies the specific time of fixing the price level.
The duration of binary options starts from 60 seconds (exotic options contain 30-second intervals). The validity period can reach up to a month or more, but in any case, the contract settings include the choice of a specific expiration time.
The expiration parameter sometimes determines the type of contract:
- duration up to 5 minutes for "turbo options";
- duration above a day for a "long-term" option;
From the point of view of skeptics, expiration makes binary options are unpredictable, since you can correctly predict the direction of the trend, not the time of its development. But limiting the transaction by time is a common trading tactic:
- scalpers, trading on small time intervals; fundamentalist traders, predicting the reaction time to the released event.
In the first and second cases, the transaction is closed by the trader independently, after the time interval has expired, in order to avoid flat – sideways price movement within certain price limits. This tactic saves the deposit from "unnecessary" negative results – the absence of a trend leads to frequent triggering of stops – pending orders that limit the loss.
The choice of expiration time is due to strategy, tactics, type of binary option, future economic by news, time of day, etc.
Choosing the expiration time of binary options according to the strategy duration criteria
Traders conditionally divide strategies into short-term, medium-term and long-term strategies. This gradation determines the "maximum ceiling" of expiration, for example, a day for intraday trading, five minutes for scalping transactions. The latter must necessarily contain the time of the duration of the transaction, in other cases it is determined empirically as the average interval in which a larger percentage of forecasts are worked out.
If the strategies use indicators, then the expiration will be equal to the average half-period of moving averages or other similar cyclical indicators applied directly to the price chart. That is, oscillators and other derived interpretations of the movement quotes are not used in this case.
Choosing the expiration time of binary options by the type of strategy
Among the main types of strategies, there are trend, countertrend strategies and work in the flat price channel. In the first case, the expectation of a directional movement pushes the trader to maximize the expiration period, since it is believed that a directional movement will sooner or later raise / lower prices above the level entry.
If we analyze the trend strategy into tactics, according to the style of entering a position, they can be divided into "breakout" and correction. In the first case, the trader makes a deal upon the fact that the quotes exceed the previous highs/lows, while in the second case, after their formation, he waits for a rollback to enter.
Expiration at the breakdown of the trend strategy can be limited to range of two or three candles. The breakthrough of the extremes is accompanied by an acceleration of movement, forming an impulse. If the underlying asset, having reached a new maximum at the moment, rolls back, then a "false attack" signal may be formed. Often this situation indicates the end of the trend and the maximum expiration time will not "save" the trader, and a movement within two or three candles will be enough to work out the momentum.
Buying a binary option using a trend tactic based on a rollback does not allow you to set a short expiration time. The trader will never be able to accurately predict the end of the correction and the interval for the resumption of the trend.
Countertrend strategy, one of the most common among professionals trading binary options. Despite its higher performance compared to trend strategies, it cannot be used when trading other assets, since a forecast error entails large losses, from which restrictions in the form of stop loss. New highs/lows can cause a price gap and large losses exceeding the size of the limits of the protective order.
The loss on binary options is known in advance and cannot exceed the investment level. With a countertrend strategy, traders set the maximum expiration time equal to two or three candles of the "working timeframe", since a" false breakdown " brings instant profit. If an impulse has formed that confirms the trend, then an increase in the expiration time will not save a countertrend binary contract from losing."
The flat strategy of earning on a sideways movement is used in options of the form: Touch/Without touching (Range/Within the range), mainly within the day. Traders know in advance the "time windows" during which there is no trading activity. It can be "Asian session" , the segment after 22-00 on "American session", noon time "European session , etc.
The expiration time is selected exactly equal to these intervals. Additionally, the type of binary option and the underlying asset are carefully selected, will be checked economic calendar, for the lack of news during this period.
The expiration time of the" American "binary option
the" American " type of binary option implies the possibility for the trader to change the terms of the contract, including the expiration time. Trading theory advises beginners to strive to close a deal ahead of schedule as soon as a "positive premium" appears. Professionals can extend the expiration time if they are confident in the trend forecast in order to wait for a profitable expiration of the contract.