Currently Blood, Fear, Anger is there on the streets especially for the Put writers, Investors, Long Only traders. But let me tell you something, “markets are filled with emotions, fear & greed”.

It is easy to say “buy when others are fearful and sell when others are greedy”. Markets are offering one such fearful scenario which brings more discomfort to most of the traders.

I’m just going through the charts where I am seeing too many emotions from the traders, especially investors too joining this bearish bandwagon.

However, from the charting perspective, I am seeing too many gaps open for this current swing and one of my favorite pattern Island Gap reversal is open in Nifty Spot. This comes around 12071. Practically speaking it could be an ideal zone to consider longs for the target of the closure of Island reversal gap in the next 3-4 months of horizon period.

Island Gap reversal is one of my favorite trade setups. Which we talked about it numerous times in our blog with live examples. Following are some of the trade setups and tutorials.

Nifty Smallcap – Bullish Island Reversal Pattern to be Revisited?

Nifty FMCG – Bearish Island Reversal Pattern to be Revisited?

How to trade island gap reversal setups

Island Gap Reversal Zone in Bank Nifty Futures

That means if you are an investor out there It is a reasonable opportunity to get a fair value at the current juncture.

At the time of writing Nifty spot had done a low of 10294. All I am hearing from the traders, investors, media channels, the social media group is just bearishness what do you think?

The world is sinking in fear and Indian markets also no exception. Panic is everywhere right from stock markets, commodities, currencies even bitcoins. Every asset class is sinking down.

Nifty futures on Thursday broken June 2017 low and crashed almost -8.7% by the close. And other world markets are literally crashed by more than 7%

These are the time one has to get back to the basics especially when things are not happening in your favor. The key mantra is “one step at a time”. Positioning is the first thing a trader has to focus on sustainable high volatile markets.

Also learn during high volatile times how you have to position yourself during a high volatile market which is very different from low volatile markets. High volatile markets are driven by extreme greed or extreme fear. However low volatile markets are calm and soothing markets with a little surprise around the open.

Another weird thing about this crash is that markets are opening down with gaps and US markets are hitting circuits very frequently when never happened even during the 2008 crash. Current swing has almost 5 gaps and in any gap down likely then the current swing has 6th gap open which is kind of a rare occurrence from a trading point of view.

However, this crash brings a lot of memories, pain, money, happiness, fear, greed and a lot many things among the traders/investors and that changes the dynamics of the markets and even changes the trading style of many traders.

Whatever it may be. With the current ongoing Corona Virus fears I have one thing to say.

“Be Safe! Trade Safe! “

USDINR Futures hits All-time high in NSE Bourses. Rapid Fall in Commodities prices & ongoing coronavirus pandemic tensions and rising demand for the dollar index, fear of growth slowdown put the emerging markets currencies at risk.

It is noteworthy that foreign portfolio investors (FPIs) have pulled out a whopping 51,243 crores from the Indian capital markets this month. With this kind of selling, the dollar crunch had begun to show its effect on the rupee that has been hovering above the 75-mark hitting all-time high.

Momentum Drivers are currently in control and a possible short-covering above 76 levels are likely due around Monday open with trading sentiment maintaining positive with G2 High is active on the profile charts.

Rising volatility on the other side with a sustained vertical uptrend which is worrisome news for unhedged importers.

Rising US Dollar Index

USDINR Options Data

However, IV’s of 27th Expiry contracts shows very mild volatility at this point. Not many clues from USDINR Options data points. However, at this point IVs are point towards +/- 0.70 points fluctuation in USDINR Futures.

Nervousness is looming around currency traders as emerging market currencies are constantly depreciating against the dollar amid corona virus fears.

USDBRL – Brazilian currency depreciated by 13.5% for the month of March 2020

USDRUB – Russian Ruble depreciated by 19.68% for March 2020

USDIDR – Indonesian Rupiah depreciated by 13.34% for March 2020. Indonesian rupiah touched 16,269 against the greenback at one point, a level not seen since the Asian currency crisis in 1998. 

USDMXN – Mexican Peso depreciated by 24.23% for March 2020

Emerging nations are under direct threat of currency crisis which makes imports too costlier form them and thereby reduction in spending resulting in a steeper economic slowdown.

The daily trend of USDINR continues with higher and positive for the last 4 trading sessions and interesting volatility is also rising for the last couple of days.

Amid coronavirus fears, our entire nation goes for a lockdown of 21 days will result in the shutdown of various businesses impacts the core fundamentals of USDINR. Last Tuesday USDINR Futures ended with an extreme indication which is a clear indication of a possible gap up is brewing in the current environment.

From the market profile charts we learned that too many weaker hand sellers competed around ATH. A Fresh All time high is due in a very short term

Overall a strong short-covering rally is due in USDINR in a near term reaching 77-78 levels faster with a possible gap up scenario.

In recent turbulent times in the markets, it is very difficult for many traders to manage their positions. Here are some of the guidelines on how to manage your positions in a High volatile market using market profile.

Its been a very long time that we looking into the short term view of gold. In the last couple of months(Feb & Mar 2020), Gold is showing elevated volatility compared to the last 6 years of dull & boring price action.

Short Term trend is holding up positive for the last 3-4 trading sessions. And the most surprising factor is, during the times of fearful environment we are told that Gold is one of the safest asset class to invest but rather that context seems to be partially true.

When the real panic is hitting the floors even gold declines in value. Probably not a good idea to buy the gold exactly when you are realizing that we are in a fearful environment. Significant correction in Gold happened during the month of Mar 2020 (Corona Virus Covid-19 Fears), where the price moved from 1700 levels to 1451 levels per ounce.

Monthly, Weekly and Daily trends holds to be on the positive side and at present the fearful environment is bit reduced despite the day to day rise in exponential covid-19 world wide infection rate.

In a short term supports are upgraded towards the psychological levels 1600 and possibly an upmove is brewing towards 1680 and 1700 levels.

Metal stocks are facing the worst drawdown ever and continued to be in drawdown since the start of 2018. The current drawdown stares at 60%. Never mind the damage is done and currently trading down below the fair value.

The ongoing coronavirus fears and most of the countries going for a lockdown sends the metal index to near to 2016 lows which offers a potential investing odds to accumulate around such extreme fearful zone.

China is the largest consumer and supplier of several commodities, including metals and they are completely out of covid-19 lockdown.

Meanwhile in China, where the pandemic broke out, not a single new death was reported, and the city of Wuhan in Hubei province, where the new virus was first identified, prepared for lockdown measures to be lifted. Probably this could ease some pressure in the short term.

WATCH: Chinese city of Wuhan, where coronavirus pandemic began, lifts lockdown pic.twitter.com/kEw25fVYDL

— BNO Newsroom (@BNODesk) April 7, 2020

China is back to business and so the demand for metals as well. And if you ask me what is the fair value of metal index then I prefer to use the running point of control as shown below.

We can use the year 2019 point of control ( 2967 levels) as a fair value estimate as the price completely deviates quickly away from the fair value provide investing odds and if the Chinese situation retains stability then price has the higher odds of mean reversion back towards the fair value estimate. And currently, Metal index are quoting 80% away from the fair value.

What do you think will the metal index ever rebound to the fair value this 2020?

We know that the purpose of the exchange is to facilitate trading between buyers and sellers. Auction market theory is a basic stepping point to understand how the auction happens among the buyers and sellers.

When the markets open interaction between buyers and sellers kick starts and the buyers and sellers will start finding what is the fair price for the day. As the price moves up, it brings in more buying or, as the price moves down, it brings in more selling.

The market auctions up until there are no more buyers. Then it reverses and moves down until there are no more sellers.

When the market can’t facilitate trade on the upside, it will generally test the downside. When the market can’t facilitate trade on the downside, it will generally test the upside.

Price discovery set out what sellers are willing to accept, and what buyers are willing to pay. Price discovery is concerned with finding the equilibrium price that facilitates the greatest liquidity for that asset.

Price Discovery is largely driven by supply and demand. It is a useful mechanism to gauge whether an asset is currently overbought or oversold. It can help you assess whether buyers or sellers are dominant in any one particular market

In the above video we had done a detailed explanation of how the price discovery happens on a day to day life. If you are so interested in how the price discovery process and how to visualize using market profile then you should check out the video.

For more such intensive mentor-ship program on Market Profile and Orderflow Analytics. New Batch for TradeZilla 3.0 starts from 18th Apr onwards. For detailed Agenda visit http://www.tradezilla.co

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Now with One ounce of Gold one can buy 83 barrels of Crude Oil. Gold-Oil Ratio is at the historical peak as the FED keep their money printing to stimulate the economy.

The reason behind such a huge Gold/Oil ratio is due to predominantly due to plummeting oil prices and whereas Gold prices inching upwards faster.

Historically over the past 25 years, the ratio between gold and oil has averaged 15.8.  That means that a troy ounce of gold was worth on average the same as 15.8 barrels of U.S. crude oil. However, a current spike in the gold-oil ratio at historical levels is alarming.

The previous highest value of the gold-oil ratio was a giant 47.6 in 2016 when oil prices were slumping due to China’s economic slowdown, while gold prices remained firm.

And we know that such historical gold-ratio levels are highly unsustainable either Crude Oil is underpriced or Gold is extremely overpriced.

Oil slumped further on Tuesday as historic production cuts that OPEC agreed to over the weekend were overshadowed by the coronavirus pandemic’s impact on global demand.

USDINR retreated from its All time high on last friday after RBI has decided to reduce the fixed reverse repo rate under liquidity adjustment facility (LAF) by 25 basis points thus discouraging banks from keeping their surplus funds with it.

RBI also ensured liquidity for small non-banking financial companies (NBFCs)

Last friday USDINR Futures formed value area lower compared to thursdays trading sesssion. Mid-Day drop is bought back around the intermediate support zone 76.40-76.50 and remains as the key support zone for the upcoming trading session. And the Previous all time high is currently acting as a support zone.

USDINR Hourly Charts

However if price breaking the zone 76.40-76.50 can bring the short term downside target to 76 and 75.70 levels. Sometimes a break below downside is much needed for more upside targets.

But do I think the upside in USDINR is over?
Not yet. We are not out this ongoing currency crisis. If any break on the downside is limited.

Oil Futures – Daily Charts (Front Month)

I woke up in the morning just to see the headlines “Oil Drops to 21-Year Low With Storage Filling as Demand Shrivels”. Ever-since OPEC and its allies agreeing to cut production by 9.7 million barrels per day, Crude oil continuing its downward journey.

OIL 5min Intraday Charts (Front Month)

The front-month May futures contract was down 14.88%, or 2.72 dollars, to $15.55 a barrel as of 10:27 p.m. ET (0228 GMT). That contract is expiring on Tuesday, and the June contract, which is becoming more actively traded, was down 1.29 dollars, or 5.15%, to $24.71 a barrel. Brent was also weaker, falling 28 cents, or 1%, to $27.8 a barrel.

WTI Crude near term contract is totally disconnected from London Brent futures. Our local MCX market is not open yet however, roughly 583 pts of the premium is witnessed in the next month’s May Futures contract compared to the front month expiry as on Friday closing. Similar Premium was there during Feb 2016 when the oil was trading around 25 dollars per barrel before bottoming out.

And the Gold Oil Ratio is currently at 100+ levels which is at super extreme levels compare to the historical average. Hence more odds that Crude Oil Prices are likely to be at the value investing zone.

Do you think Oil Nearing bottom here? I do.

Trading sentiment is at the extreme and fear of oversupply concerns are there despite a record oil production cut.

Nifty Futures – Daily Charts

Nifty trading sentiment turned negative at the close that breaking the streak of trending longs. And short term sentiment is pointed towards the weaker reference levels towards the weaker HVN levels 8700 which is double weaker around 8700.

Nifty Futures – Dynamic Volume Profile

Intraday volatility cooled off a bit with an intraday range around 150+ levels in the last couple of days. However 10-day ATR is still above 400+ levels indicating that Nifty is not free from uncertainty.

Value area formed lower on Tuesdays trading session with a potential island gap reversal. Sellers confidence maintained high through out the session which is an indication that more downtrend likely in the short term.

Short term liquidation is seen overall on Tuesdays trading session and Immediate Short term support zones are around 8700 levels which is also a weaker reference and the odds of breaking 8700 is possible with the given trading sentiment.

Nifty Market Profile Charts

And later on a clear monitor needs to be established to understand whether the levels 8700 is accepted or rejected around the support zone.

Here is a simple Amibroker AFL Code to Explore (Scan) in Amibroker to get a picture about the recent volatility and how the volatility in the market is behaving to get a perspective about the market.

Once you get the right perspective about the market you can learn to control the expectation from the market volatility.

Often in the market “large changes tend to be followed by large changes… and small changes tend to be followed by small changes”

What are the ways to measure volatility?

There are many ways to measure volatility. Talking about current volatile conditions (Realized Volatility) I prefer to use the simple tools like prev day close to todays close price swings, high to low intraday volatile swings and ATR Based volatility.

Here is the recent picture of how recently the market behaved in the last two months (March 2020 and April 2020).

What we can conclude from the above picture is that March 2020 volatility went to the extreme and started cooling down after hitting the lock down period. Fear was there during the last week of March 2020 however post the lockdown fear started slowing down (i.e after 23rd March 2020). This phase markets showed erratic intraday and daily volatility. Bigger swings and wild intraday fluctuations been there.

And from Lock down 2.0 onwards the fear in the market is completely slowing down as the intraday fluctuations is reducing day by day and most of the bigger price action still happens in the form of gap up or gap down. However post the gap up or gap down not much of a bigger price action like March 2020 but a controlled intraday volatility.

Here is the Amibroker AFL code to retrieve the volatility data points.

Happy Trading!

Last time I wrote about what could possibly go wrong with S&P500 index spotting a fundamentally overvalued reason and Price action on quarterly charts. This time it is more of a simple technical reason which explains why the 10% correction is due in S&P 500.

As of now Two Technical Indications explains a possible short term drop of 10% in SPX.
1)Rounded Top compression pattern
2)Bearish Island gap reversal pattern around 2530-2580 range

Island gap reversals are medium-term pattern which are most likely to be revisited with higher odds. Usually, the revisit will happen anywhere between 5 weeks to 30 weeks.

The good news is that there is two island gap reversal pattern which is currently open in the S&P 500. One around 2530-2580 range and another around 3300 levels.

The rounded top formation is a possible zone to look for short term correction towards Island gap reversal zone.

Which brings the potential odds of short term correction towards 2500 levels i.e approx 10% correction from current level followed by a potential upside target of reaching 3300 levels in next 6-7 months timeframe (i.e before 2020 presidential election results) in the medium term.

This is an Introductory webinar series for those who want to get their expertise in Options Trading using Market Profile. It is a 5 part trading series webinar on Market Profile and Options Trading. If you are new to Market Profile and Options this series will help you to improve your trading decision-making skills better.

Topics Covered

How to Prepare for the Fresh Month using Market Profile

Trading High Volatile Markets Vs Trading Low Volatile Markets using Options

How to Observe Market Profile During Live Markets

How to use Option Action tools for Option Trading

Simple Option Trading Strategies using Market Profile

For those who want to join 90 hours of a complete online mentorship program on Market Profile and Options visit Option Hydra portal for detailed agenda

we traders often immerse ourself into the Trading patterns , Price action and focus more on price based information (SGX Nifty, US Markets, ADR, GDR Prices) and price based indicators, Trend line breakouts and mostly miss the underlying market context which is the most critical information and has a great value in addition to our technical analysis.

What is a Trading Context?

The trading context is nothing but collecting meaningful insights about the underlying trend, market structure, volatility, momentum, ongoing trading sentiment, overall investors, and traders’ mood, which will help traders to formulate their trading process and help you to understand the ongoing market dynamics.

Building the trading context helps traders to device their trading methodology based on the current market conditions. And more to that keeps you to stay objective on your trading decisions and brings the flexibility to adapt to the changing markets conditions.

various trading strategies perform very differently during different market phases. There are times the market dynamics change faster than we anticipate and knowing the market context helps you to take better trading decisions at the time of chaotic market conditions.

What is the Best way to get the Market Context?

Knowing the market context starts with relevant data collections. It be done by collecting the following list of information which helps you to prepare for the upcoming trading week or trading month objectively

1. Top-down multi time-frame approach
2. Macro-Economic events, Impactful news and Event Risk
3. Market Expectation (Euphoria, Panic, Disbelief..etc)
4. Option Writers Positions (Open Interest, Implied Volatility)
5. How you are going to manage your trade in the given conditions using technical analysis + with your trading experience.

Top-Down Approach – Multi timeframe Analysis

Every objective trading analysis starts with Top down analysis. Every week or every start of the month you should look into the overall structure of the market from various timeframes (Monthly, Weekly, Daily) and

1. understand which timeframe is trending and which timeframe is consolidating.
2. to understand which timeframe is generating more momentum and which timeframe the momentum is slowing down.
3. have a perspective about ongoing market volatility. Is the recent market fluctuations are accelerating or slowing down?
4. Mark the important reference levels that you are finding relevant to the current trading context.
5. If the markets are trading in a range (consolidation) what are the odds of continuation of the sideways price action
6. If the markets are trending, think what are the odds of a trend reversal, what was the current market sentiment. Is it Euphoric?
7. Is the market trend is difficult to determine? Is the market is totally chaotic? Which strategy could work better in this scenario?
8. Have a bird eye perspective and try to trade the immediate trend if the scenarios is not euphoric or extremely fearful. And think about the odds of trend reversal only if you are seeing euphoric price action.

Doing the top down analysis is the mandatory step before you get into the your core technical analysis which will help your analysis to stay objective and more than that help you to identify how small / big a trading opportunity is.

Macro-Economic events, Impactful news and Event Risk

Collect relevant information which could have a short term impact on the markets. Macro-Economic events and the news based information on heavy weight index (For Example News on Reliance or Earning Results announcements on heavyweights like Reliance, HDFC Bank, ICICI Bank, Infy, TCS)

Dont try to interpret the news but just aware about when the news is getting released. Interpreting the news is meaningless and the market sentiments changes faster as the markets are always forward looking and little it care about the past information.

Subscribing to twitter alerts from redbox india to know about the ongoing macro events, breaking news or surprise macro announcements.

Get Indian Financial Real time news before market moves only on Redbox India
And Audio news.

Pls Visit https://t.co/2XcotjlcZQ

For any issues or queries pls email
saidutt@redboxglobal.com
Or call at
+918806377087 pic.twitter.com/5ceApHqWrK

— Redbox India (@REDBOXINDIA) May 21, 2019

Stay away from interpreting too much about the publicly available information

1. SGX Nifty
2. ADR Prices (NYSE)
3. London GDR Prices
4. Asian, European, US Markets performance
5. Brokerage Reports
6. Put-Call Ratio

This will keep your emotional levels at the check and you will be staying away from unwanted bias. At the end of the day, we are traders so we need to stay focused only on relevant information and ignore the information that is irrelevant or of low importance.

Measuring the Market expectations

Market expectations can be calibrated in various ways

1. How a particular stock, index is valued among the general public
2. what the crowd is saying (social media talks, media opinions, polls)
3. How the Implied volatility / VIX is positioned relative to the ongoing macro economic factors.

measuring the market expectations have little value to your trading decision on day to day basis, because the expectations in the market always fluctuates and vary from trader to traders as different people take different style of risk.

But there are times when a single sides opinion takes place which brings a low risk – high reward trading environment most of the time. That is the best place to trade against the entire crowd psychology.

The better way to understand the market expectations is using tools like market profile which helps the trader to understand how other traders think in the current market environment.

Knowing the Option Writers Positions

Before the start of the week learn to get a perspective about how the option traders are positioned for the week and what strike price the option writers are crowded. And how the implied volatility is positioned for the week.

This will largely help you to see the possible trading range and which strike price to trade if you are a option trader and also help you to gauge whether option price is cheaper or expensive.

Managing your Trade and Expectation

Based on all the above factors how are you going to positioning yourself. This is the biggest of all the part because your real time trading decisions happens here. So a game plan is required to take the realtime trading information.

1. Are you coming into the market with larger expectations or with controlled expectations?
2. Are you going to trade at the open or going to wait for the market to settle down?
3. What kind of trade setup or market confidence you are expecting?
4. Is the market moving as per your expectation?
5. Are you planning for re-entry or stop and reverse?
6. How you are going to handle your positions if all of a sudden if the markets shoot up or drops down?
7. Are you going to finalize your stop-loss immediately or after some time?
8. Are you comfortable in not to initiate any trades and willing to wait as long as you are not seeing any significant trading opportunity?

Always remember, a trade taken without knowing the current running context always have larger consequences at some point of time and it often ends on blaming technical analysis by amateur traders.

I guess the above insights will help you to control your market expectations as the trade unfolds and help you to focus on the right market context and stay away from irrelevant information as much as possible.

Cheers!
Rajandran R

What is a Bearish Diagonal Call Spread?

Bearish Diagonal Call spread is neutral to bearish strategy which is executed by buying long-dated in the money call option and concurrently selling short-dated out of the money call option.

In Nifty futures on monday morning price opened with a big gap down and trading 500 points lower and also broken the recent trendline levels and the immediate trading sentiment turned negative.

The objective is to trade a short term setup for the expiry with a reasonable risk reward ratio especially in a fearful and rising volatile environment.

Bear Call diagonal spread creation

Short 1 lot of 9300CE – Current week expiry @ 188/lot
Long 1 lot of 9400CE – next week expiry @ 232/lot

Breakeven levels are at 8860 – 9578 levels and the strategy also has limited risk and limited reward style which suits execution especially after a big gap down day where you have to come up with controlled thinking.

What if Scenario on 7th May 2019 Expiry

China has begun the trial of its new digital currency “e-RMB”, in four of its major cities. A full-fledged launch could be expected in May 2021. This move, in China, could potentially change the finance world forever. Let’s understand what “e-RMB” is and what effect it could have on the world.

“e-RMB” stands for electronic Renminbi. Renminbi is the official currency of China whereas Yuan is the unit of Renminbi currency. The project has been in development since 2014. “e-RMB” is not a cryptocurrency. The PBoC’s Digital Currency Research Institute did not want a blockchain-based approach as it would have led the currency to be decentralized with distributed digital ledger, which in simple terms means, it would not have given China complete control over the currency and China did not want that.

This digital currency will be pegged to the Chinese national currency and will have the same legal tender status of cash. The transactions of “e-RMB” are possible even without the internet and can be used to make contact-less payments.

The People’s Bank of China will be the sole issuer of the digital Yuan, initially offering digital money to commercial banks and other operators. The “e-RMB” will be “tokenized” money, fully backed by the central bank of the second-largest economy. The token will be a private blockchain, a peer-to-peer network for sharing information and validating transactions, with the People’s Bank of China in control of who gets to participate.

Effects on the world, of the digital currency backed by the 2^nd largest economy of the world:

1. Replacing the Dollar: A sovereign digital currency provides a functional alternative to the dollar settlement system and blunts the impact of any sanctions or threats of exclusion both at a country and company level
2. Financial Globalisation of China: It may also facilitate integration into globally traded currency markets with a reduced risk of politically inspired disruption
3. More control: Because cash transaction were offline and transaction data from existing payment platforms were scattered, the Central Bank of China (PBoC) was unable to monitor cash flow in real-time. With digital currency, it has become possible to monitor cash flow in real-time.
4. Rise of private money: There is a growing sense that central banks worldwide should issue a digital version of cash to prevent the “privatization” of money by commercial entities and IT firms.
5. Impact of COVID-19: The still-raging novel coronavirus pandemic and the higher health and hygiene awareness among masses have also added impetus to the trial of the digital currency. There has been a dramatic drop in the cash in circulation in Wuhan, the initial ground zero of the virus, most retailers there refuse to accept coins or paper money as a precaution against the highly contagious pathogen. The world is likely to follow this trend.
6. Regulatory Control: As the regulators gain more control over the flow of the money and with added real-time monitoring functionality the privacy of the user of the digital currency is at a huge risk.

It will start small, but the digital Yuan can disrupt both traditional banking and the post – Bretton Woods system of floating exchange rates that the world is living with since 1973.

When to Execute this Strategy

When the Market Expectation is Bearish to Sideways or you are expecting choppy environments with a clear resistance and supports and at the same time you want to avoid if any extreme downside or upside risk as you are dealing with high volatile and uncertain environments.

Bear Call diagonal spread creation

Short 1 lot of 9250PE – Current week expiry @ 124.3/lot
Long 1 lot of 9350CE – next week expiry @ 277.50/lot

Breakeven levels are at 8505 – 9463 levels and the strategy also has limited risk and limited reward style which suits execution especially after a big gap down day where you have to come up with controlled thinking.

Reward will be maximum if Nifty Spot expires at 9250 levels.

What-If Scenario

What are binary options:

A Binary Option is a financial instrument based on a simple yes or no question where the payoff is a fixed amount or nothing at all. This means Binary Options offer defined risk and clear outcomes on every trade. Which means, either your stoploss will hit at the expiry of the option contract or your predetermined fixed target will hit. This is why binary options are also known as “All or nothing” options.

How to trade Binary options:

In India trading binary options is illegal. But more on that in the “Legalities Binary Options trading in India” section of this article. The most popular alternative available for Indians to experience Binary Option trading or actually try it out with real money are android apps and a select few websites. The most popular being the “IQ Option”, “OLYMP TRADE” and “ExpertOption”.

I will use an example of IQ Option app for this article.

The most popular binary options contracts available on these apps are forex contracts. The trading process over these apps are more or less the same.

1. The first step is to pick the assets you want to trade. Each one is based on an underlying market and your trade is based on that underlying markets price movement.
2. Then you want to find a strike price that works for you. The strike is the price level you think the market will be above or below at expiration.
3. When opening a trade you will select an expiration day and time. The expiration is the moment of truth traders live for. This is when trading is over and the value of your binary option is determined.

The big buttons you see, “Call” and “Put” are, as their name suggests opens a respective position by clicking on them. The red colored flag that you can see at the bottom of the candlestick chart is the expiry of the contract. The dashed-vertical-white line you see, is the time line. The moment when price crosses the white line, the app would not accept a new order for that particular expiry. The highlighted prices you see on the right axis are the strike prices. You can manually choose from the price or go with the automatically selected closest strike price. The percentage value just above the big green button of Call is the return percentage. Here it is showing 87%. It means, that if you win a trade, and if you had traded with $100, you will get $87 in profits.

Let’s look at the default options trade available here:

Say you entered a trade of a Call option with strike price say 100 and selected the expiry of 15 minutes. Now, only two outcomes are possible. Either you will make 87% profit in your trade (w.r.t previous example) or in losing case, you will lose your entire $100. And this is why these are called “All or nothing” options.

Differences between Traditional/Vanilla Options and Binary options:

• In Binary Options, price movement is irrelevant, just the direction (above or below) while Vanilla Options require a relation of the strike price of an option and the underlying price in order to execute the option.
• In Binary Options payout is fixed ,in Vanilla options payout is Dynamic, based on the underlying asset price.
• Almost all of the Binary Options can’t be exercised before expiry. Vanilla Options usually can be exercised any time prior to expiry.
• Don’t have the right to exercise to stocks while the vanilla options owner has the right to exercise his options and turn them into stocks in case option expires ‘In-the-money’.
• Binary Options in India are not regulated and any kind of cross currency pairs forex trading is illegal and against Foreign Exchange Management Act 1999 (FEMA)

Why Binary Options are better than Vanilla Options:

They are very easy to understand and have a definite risk and reward, the moment you enter into a trade.

Why Vanilla Options are better than Binary Options:

Vanilla Options can be traded right from the moment you entered into a trade and salvage some money if you have got yourself into a losing trade. Whereas in case of Binary Options, you have to wait for the expiry and once a position is opened, you have to wait for either of the outcomes. There is no middle ground.

Vanilla Options can be deployed with variety of strategies and potentially the profits are unlimited! Vanilla Options are regulated in India and the traders have lots of protection against defaulters.

Legalities of Binary Options Trading in India:

Unlike many other countries, binary trading is illegal in India. As per the guidelines provided by the Reserve Bank of India, binary trading or any form of online trading of foreign exchange is not legal in India. The financial sector in India is primarily regulated by the RBI and Securities and Exchange Board of India (SEBI), which do not favour investing in binary options like IQ options in India.

The Foreign Exchange and Management Act (FEMA) prohibits binary trading or forex trading in India through electronic or online trading portals. Any investor who takes up binary trading in India does so at his own risk, with no law to regulate dealings of binary trading options in India.

The first question that comes to mind is, ‘Is IQ option legal in India?’ IQ Option is a binary options trader owned and operated by IQ Option Europe Ltd. It is a regulated and licensed binary options broker, but since the binary option is not legal in India, so IQ option does not hold a legal status here.

With no laws or rules to regulate binary trading in India, investors who are involved in binary options in India do so at their own risk. There is no legal remedy available to a trader who gets involved in an IQ option scam of binary trading in India. There are many fake websites rampant over the internet that scam people and end up stealing their information and money.

Final Thoughts:

Generally speaking there are two schools of thought when it comes to binary options. The first group considers binaries to be an improvement on the standard, rather involved vanilla options; the second group considers binary options to be a form of gambling rather than a form of investment or trading.

It must be conceded that binary options are high risk, high return financial instruments and thus may risk and returns from binary options trading may resemble those associated with betting. However, trading binary options is no different than many other forms of speculating on the financial markets.

Happy Trading.