In continuation of our series on binary options bets, we will discuss the Ladder binary option trade. It is a new variety of binary options trading which was introduced by IG Markets and is gaining popularity.
What exactly is the Ladder trade, and why does it get the name “Ladder”? A Ladder option is a type of binary option trade in which the trader is given a range of price levels which are lined at equal intervals like a ladder, for the trade to finish higher or lower than, at the end of the trading day. More simply put, a ladder binary option specifies that the market has to rise beyond a certain price level, after a certain period while the trade is active.
What this means is that there are several price levels to be set, and several periods to be set. The price levels are arranged just like the rungs of a ladder. For the trade to be successful, the asset has to have “climbed the steps” at certain times in order for the trade to be in the money.
Let us imagine that the EURUSD is trading at 1.2789, and you want to trade a currency ladder binary trade with your broker. You want to perform a ladder trade with three price levels: 1.2750, 1.3023 and 1.3060. How do you trade this for the trade to be profitable?
In setting your trades, the first thing to do is to choose an expiration time, which for the purpose of this example, we will set to 2300hrs. The next thing is to look at the array of the trade 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)
What does this translate into?
- 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.
What this means is that the trader has to do his analysis on how the price action of the EURUSD will look like on the trading day, and then choose from any of the ladder trade options.
One strategy that a trader can use to play the ladder trade is the pivot point strategy. To use a pivot point strategy, the first thing to do is to plot the pivot points on the charts of your chosen asset using a pivot point calculator. This will show as three lines of support (S1, S2, and S3), a central pivot point and three lines of resistance (R1, R2, R3). The chart below illustrates how pivot points will look like.
Next, use the pivot points as guides to what the price could do during the day. Since we are using an intraday expiration, the trader could use a 1-hour chart for analysis. Typically, you would be looking at prices that are just above support levels for a bearish market, or in a bullish market, look for prices that are just above resistance levels that have been breached to become intraday supports.
With those points in mind, you can look at ways to set your trades, using these levels as a benchmark to set your ladder rungs. You would typically be looking at setting your ladder price levels at about five pips above the necessary levels. That way, you can be sure that your trade has a sure chance of success.
You can trade the ladder strategies with brokers like IGMarkets. If you are a US citizen, then try using NADEX.
Please practice making simulated trade calls using a demo platform. You can download a platform from FxPro, a forex broker that also offers trading in crude oil, spot metals and index futures, hence it is a good place to practice trade calls.