Binary Options RollOver Strategy
by Phil Moore · March 12, 2014
The Binary Options ‘Rollover’ is a popular feature that many Binary Options brokers are now offering prior to expiry on ‘out of the money’ contracts.
With just one ‘click’, and for a small premium, you are able to Rollover a live out of the money contract on your account until the next expiry time. This effectively provides you with a second opportunity for the contract to end in the money.
How It Works
The Rollover strategy is not available on all trading contracts. Instead it is only offered on specific ‘open’ contracts subject to the criteria below.
The ability to extend your contract is only offered on live ‘out of the money’ trading contracts that are currently open in your account.
The majority of brokers offer this facility only on hourly contracts, 10-20 minutes prior to the expiry time of the contract.
You pay an additional fee to the broker to execute the rollover. This can be as much as 30% of the value of the open position. This is an additional ‘risked’ amount if the contract ends out of the money.
Rollovers extend the contract that you have open in your account by the duration that the original contract was set to run. So for example, when a 1 hour contract is rolled over it will then expire at the next 1 hour expiry time.
Advantages and Disadvantages Of the Rollover Feature
This feature is primarily aimed at traders who have a high conviction in their prior trading analysis. They may feel that they have simply ‘mistimed’ the contact and so the opportunity to take a ‘second bite of the cherry’ gives another chance to register a win.
For example, you may have forecast the EUR/USD to end higher. With 10 minutes to go the contact sits a few pips adrift of ending in the money. However, as the fundamental and technical analysis continue to point higher, you decide to pay the additional fee to roll over the contact to the next hour. This is in anticipation of turning the contract into a firm winner at the next hourly expiry time.
There are two things that it is important to remember however. Firstly it is important to know when to use the rollover . It only works in cases where your conviction in the outcome is high . Often if a position that you have taken has moved against you it will continue to lose. Don’t compound your losses. This feature won’t turn a losing position into a winner.
The second thing that you need to think of is the cost. Most binary option brokers will charge up to 30% in commission to extend the contract. You therefore need to think carefully as to whether you are better off extending an existing contract, or simply opening a new one.
Like many of the advanced trading features that are offend by brokers, making use of a Rollover strategy can prove to be a double edged sword . There are no hard and fast rules about when and how you should use it. It can prevent you from realizing a loss on your contract or it can simply compound your losses. It pays to workout a strategy for using the Rollover on your account and defining when to use it.