Closing trades early was never a feature of the binary options market until very recently when a rash of brokers began offering this feature. AnyOption was one of the pioneers of using early trade closure, usually a feature of floating options and not the fixed options market (digital or binary options). Since it has become a marketing tool to attract traders and a lot of brokerswho never offered it have started offering it on their platforms, it would make some sense to talk about it here.
The “early closure” or “option buy back” function works both ways:
It can be used to take profits early
It can be used to cut losses
1. Taking Profits with the Early Closure Function
In the markets, trade results are not always an assured thing. It is possible for a trade that was looking good to experience a downturn and end up in the red. There are a number of reasons why this could happen. There are sudden market events that could turn the markets on its head: outbreak of civil war, a natural disaster, a terrorist strike, etc. Sometimes just a good old form of intervention from a major party in the markets such as the central banks in the forex market could produce a move big enough to blow off a trade destined for profits. There is nothing as frustrating as seeing a move that should have ended in profits, ending in a loss. The binary options market is peculiar in the sense that hitherto, traders could do nothing about such moves, unlike the forex market where a trader could manually close profitable trades. The trader was stuck with waiting for the trade to expire and praying that nothing untoward happened. Well, the good news is that it is now possible to save a trade from collapse by closing trades early in the binary options market, using the Early Closure function.
2. Cutting Losses with the Early Closure
There are situations when the trader realises that a trade is destined for failure even before it has had the chance to take off. Rather than lose the entire investment or about 85% of it, a trader can opt to use the early closure option and recoup up to 50% to 70% of the initial investment. The exact percentage recouped differs from broker to broker, and will also depend on market conditions prior to buy back.
Rules Regarding the Use of Early Closure
Now early closure is not a tool that can be used arbitrarily to close trades at any time. If a trader is using a market maker, usually the market maker would be on the other side of the position. If all traders were allowed to close profitable trades early, nobody would lose and the market makers would be left to absorb losses, putting them out of business. As such, there are a few checks and balances put in place to see that the entire process of early closure is not abused by traders. Some of these checks are as follows:
- Some trades do not qualify for early closure. For instance, it is not possible to close High Yield contracts early. If allbrokershad to allow traders consistently walk away with 500% payouts, there would be imbalance in the entire trade system.
- There are certain times of the day when early closure is not allowed.
- Early closure comes at a premium. Traders would not be able to earn the full payout for the trade if they choose to use the early closure function.
- Early closure comes with a window of opportunity. Binary options brokers make early closure available at certain times. For instance, there is a broker that opens up the early closure function after a trade has been open for a certain period of time, and leaves that option open for 15 minutes after which the window of opportunity to use the early closure on that trade is closed.
- Early closure is usually not available during the first few minutes of the trade.
The early closure or buy back function is not to be abused by the trader. Proper analysis of trades will usually lead to good results from trading and the trader may then not have to rely on the option buy back function. However if there is a justifiable reason to use the early closure function, then the trader can use it within the confines of its allowable limits.