Trade off stocks, indices or commodities against each other to see who will perform better
Unlike Binary Options which you pick a single asset from any of the commodities, stocks, indices or currencies and decide whether the price will go up or down in a given time. Pair Options are directly usually more about the company stocks where you pick which one from a two will out perform the other. There are also a few commodities and indices choices too.
An example would be:
Say you choose the pair HSBC / Barclays with a fixed pair option of £100 as your bet. You then choose HSBC to outperform Barclays in the next 15 minutes and you stand to get a return of 80%.
If HSBC does out perform Barclays then you will return ‘In The Money’ meaning that you get your £100 + £80 (80% of your bet) back giving you a grand total return of £180.
If however Barclays beats HSBC you will remain ‘Out Of The Money’ and will not get any renumeration and lose your bet.
This is it’s simplest form, but there are actually two types of pair options that you can choose from, so let’s go through each more in detail so you can understand each better.
Fixed Pair Options
Much like binary options, fixed pair options are about how your option performs from the time you purchased to the expiry time chosen. This could be 15 minutes, 30 minutes, 60 minutes or even by the end of the trading day. You get to know the level of risk and how much you stand to gain if your bet is correct.
The simplest form of Pair Options trading which allows for quicker returns within minutes rather than days, weeks or months.
Here’s a step by step example of how it works:
- Find your pair that you want to bet on from the list given. In this instance we choose Google / Apple
- Then you choose whether you want to bet on the fixed or floating, in this case fixed.
- Now you get to choose the expiry time from the time you purchase or click the ‘BUY’ button. The ranges differ for different pair but in this instance we set 10 minutes.
- Then you select which one of the pair you think will out perform the other. I.e. which will have the biggest difference gain over the other at the expiry time.
- You set the amount you wish to bet
- This will then show you your return in this case 82%
- And you will also get to see how much in total cash you stand to gain if you are correct. In this case on a bet of $30 with 82% return we stand to gain $54.60. Which is the combination of our original bet back of $30 plus the 82% of $30 which is $24.60.
- Then when you are ready you click the BUY button and wait for your option to expire, hopefully in the money
Floating Pair Options
On the other hand floating pair options are better for those who have a little patience and like to play the long game. These are done over a predefined period for instance a day, a week or a month and the start time is not the time from which you place your bet but the predefined time stated. And the end time is also pre determined for you.
But what Floating Pair Options allow you to do over fixed ones is that they allow you to close your position early before the expiry time as long as it’s during trading hours. The platform will show how much you stand to gain at the current time so if you think that it’s the best it will be then you can still end in the money.
Here’s a quick example:
- Choose your options pair in this instance BMW / Daimler
- Set the period you would like to trade in either day, week or month. We select a day
- Choose which of the assets in the pair you think will out perform the other. We think Daimler at 14% return given the current trend.
- Select the amount you wish to bet say $30
- You will see the amount you stand to gain currently and these can fluctuate more dramatically than in the fixed options. We stand to gain $34.20 in total, which is actually only $4.20 with our original $30 bet returned too.
- Press the BUY button when you feel the return is right for you and then wait.
- You then have the choice to close your position early if you feel that you won’t win more or cut to your losses.
The advantages of pair options
Binary Options are pretty easy to understand how to make a bet, and just like them Pair Options betting is just as simple.
You are shown the risk levels before you even make your bets. You can see how much you stand to loose if you are out of the money and how much you stand to gain if your choice out of the pair lands in the money. There are no hidden fees or costs associated with them and the values you see when making your bet are the true return values you stand to gain or lose.
But one advantage Pair Options trading has over Binary Options is that they don’t depend on the markets as much, in fact it can be said that they are market neutral.
What does this mean? Well the overall fluctuations in the market do not affect you your trades, what you care about are the two stocks that combine to make the pair and how they are performing relative to each other. So if both pairs go up or both pairs go down but one goes up or down less than the other then you still stand a chance of landing in the money.
Which is great given the fact that in the current economic climate the markets are super volatile and this can potentially reduce your risk of a loss, thanks to not depending as much on them.
Another advantage is that you get two types of Pair Options in the Fixed and Floating. Each one works in a slightly different way like we mentioned above but the floating pair options allow you to close your position before the options expiry time allowing you to either cut your losses or take some early gains.
Plus with over 50 pairs across the world to choose from there are plenty for you to get interested in. Here’s just a few of what you can expect to find:
- BT / Vodafone
- Tesco / Sainsbury’s
- Air France-KLM / Lufthansa
- BMW / Peugeot Citroen
- Oil / Gas
Where can I trade Pair Options?
Many of the top binary options brokers are now adding the ability for pair options trading in to their platforms. One that we highly recommend is that of Stock Pair who focus equally on this and binary options with over 50 pairs for you to choose from. They also have plenty of in depths pieces on pair options trading and how it all works.
Another recommended broker is that of Redwood Options who give you plenty of choice plus lots of free financial tools and a great iPhone and Android trading app.