What Britain’s Double Dip Recession Means for Binary Traders

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What is binary options trading?

Binary options trading is a relatively simple way of betting on whether or not a certain outcome will occur. The name ‘binary’ (meaning ‘two’) reflects the fact that you must choose from just two scenarios – yes or no.

In financial trading, this is typically whether the price of an asset will be lower or higher than a certain level at a pre-determined point in time.

The most common type of binary option is a digital option, sometimes broken down further into ‘up/down’ or ‘call/put’ options.

With a simple call/put option, if you think the price of the underlying asset will end at or above the strike price, you buy a ‘call’ option. If you think the price will be below the strike price at expiry, you purchase a ‘put’ option.

If you are correct, the option is ‘in the money’ and pays out a fixed amount of compensation.

This compensation is typically money but in some contracts can be a quantity of the underlying asset itself.

If you are wrong, it is ‘out of the money’ and you receive nothing.

Because of this, binary options are sometimes called ‘all-or-nothing options’.

The attractions of binary options trading

Because you have just two possible outcomes to consider, binary options trading is considered simpler than many other kinds of financial trading.

Typically, all you need to decide is in which direction you think the price of the underlying asset will move.

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Unlike with other forms of financial trading where your potential profit or loss is determined also by the size of a price movement, it doesn’t matter to a binary options trader how far prices have moved above or below the agreed strike price when the option expires. With binary options, a winning trade always produces the same payout.

Because of this, you have a clear picture of your risk-to-reward ratio before you enter a trade.

This is in contrast to traditional options, where profits and losses can be limitless.

With binary options, therefore, you don’t have to sit at your trading terminal, anxiously watching prices – once you have made your trade, you don’t need to check in until the contract has expired. You also don’t have to worry about applying complicated risk management tools like stop losses.

Binary options are flexible, with brokers typically offering contracts for a wide variety of underlying assets – from foreign exchange or commodities to company shares or indices like the FTSE or S&P 500.

Contracts can also run for anything from 30 seconds to several months, depending on what your broker offers. This means you can tailor your trading to your own areas of expertise or trading style.

If you’re an experienced trader in other markets, such as foreign exchange or shares, you can apply some of the skills you have already developed.

Fundamental and technical analysis, for example, can both be used to help you form a view on future price movements.

The risks of binary options trading

With binary options, it is possible to lose all the money you have invested if none of your trades are successful.

Careful money management (see Lesson 6 https://learn.tradimo.com/lessons/1278) should however ensure that you do not wipe out your entire trading account.

An example trade

All or nothing call:

The current price of Uncle’s Apples shares is $10. If you think the price will go up and trade above $10 this time tomorrow, you can profit from this expectation by buying a one day binary call option.

Before buying the option you need to decide how much money you put on the trade. This will be your investment (your risk) and your payout will be a certain percentage of this amount. If the broker is offering a 50% payout, it means, if you win, you get your investment back plus 50% on top of it.

Let’s say you invest $20 in a one day Uncle’s Apples binary call option with a 50% payout. You come back same time tomorrow to see how your trade performed. You were right, the price is above $10 per share, that is, your option expired in the money. You get your $20 investement back plus 50%, that’s $10. So you get $30 altogether.

However, if Uncle’s Apples shares were below $10 when the contract expired, the contract becomes worthless. Then the option would be out of the money and you would lose your initial investment of $20.

Other types of binary option

With a ‘one touch option’, you predict that the price of the underlying asset will at some point during a defined contract period touch (reach or surpass) a certain level. If it does, you receive a payout. If it doesn’t, you receive nothing.

With a ‘no touch option’, you predict that a certain price will not be touched during the contract period, and are compensated if you are correct.

With a ‘double touch option’, you define two price levels and predict that at least one of them will be touched during the contract period. You receive a payout if this happens. If the price stays within the range of these two prices and touches neither, you receive nothing.

Note that the closing price at the end of the contract period is irrelevant with any kind of touch option. This makes them perfect for traders who believe that prices will be volatile but aren’t confident about predicting a sustained price move.

They are therefore particularly popular for trading volatile assets like foreign exchange and for very short-term trading with contract periods as short as one minute.


So far you have learned that:

  • binary options got their name from the fact that there are only two scenarios to consider: the market ends up either above or below your target price when the option expires
  • you get paid a set amount, typically a certain percentage of your investment if you are right or you lose your investment if you are wrong
  • it is because of these two reasons that binary options have gained a huge popularity in the last few years
  • brokers have created a variety of binary options contracts so you can take advantage of special market conditions, such as ranges, breakouts, tests of significant price levels and trending markets

double-dip recession

Double Dip Recession

double-dip recession

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Britain’s stuttering economy
Double-dip trouble

Real growth looks a distant prospect, but the news that Britain has fallen back into recession is more dispiriting than alarming

AN APPALLING month for David Cameron’s gaffe-prone government took a turn for the worse this week with the revelation that the economy has not, after all, clawed its way clear of recession. Preliminary figures released on April 25th showed that GDP shrank by 0.2% in the first three months of 2020 (at an annualised rate of 0.8%), following a drop of 0.3% in the last quarter of 2020. When Britain emerged in 2009 from the deep recession that followed the financial crisis, the hope was that the economy had enough momentum to maintain a modest recovery, even while the fiscal deficit was being dealt with. But growth, never robust, has stuttered since the fourth quarter of 2020 (see first chart). Now it has stalled, leaving output lower than it was in late 2020.

Nobody expected miracles, but the figures were surprisingly poor. On the basis of earlier surveys, most analysts thought stronger performance by the services sector, which produces three-quarters of total output, would keep overall GDP in positive territory. They were wrong. Services grew by a measly 0.1%, quarter on quarter. Manufacturing fell by the same amount, and construction by 3%. The numbers will be revised, but they could go down as well as up. The outlook for the second quarter, studded with holidays, is hardly brighter.

Mr Cameron called the figures “very, very disappointing”; Ed Miliband, the leader of the opposition, retorted that the government’s “catastrophic” policies were to blame. That is excessive. The economy is essentially still bumping along the bottom. But technically Britain has fallen into a double-dip recession, and for the first time since the 1970s. The economy is rebounding less quickly than it did from previous downturns (see second chart), and less strongly than America, say. Why?

Four main types of spending drive GDP, and each of the four is being held back. Household consumption, which accounts for half of spending, fell by 1.2% during 2020. Meagre wage increases (for those lucky enough to be in work) mean shoppers have little extra to spend. Inflation is stubbornly high at 3.5%, thanks partly to higher fuel prices. Previous price rises, caused by weaker sterling and an increase in value-added tax, continue to chill consumption. To top it off, heavily indebted consumers seem more interested in paying down what they owe than splashing out on flat-screen televisions. Adam Posen, a member of the Bank of England’s Monetary Policy Committee, reckons that households holding back spending is one of the main reasons why Britain has done worse than America since 2009.

Government consumption normally accounts for around a fifth of spending. It can pack a bigger punch than its share implies because when the state buys things, cash flows to firms and their workers, boosting consumption. But this part of the pie is shrinking too: fiscal-austerity measures took 0.7% off output over the past year. Planned changes will have broadly the same impact over the next 12 months, according to estimates by Morgan Stanley, an investment bank.

Nor has stronger trade managed to drag GDP out of the trough, despite sterling’s 20% trade-weighted depreciation since before the crash. The euro crisis has been supremely bad for business. Britain sells around half of its exports to the euro area, more than to newly buoyant America or fast-growing emerging markets. Prospects for boosting sales to the continent are not exhilarating: recent indicators of manufacturing activity point to a slowdown there.

Business investment is the final source of output, and Mr Posen’s other main explanation for why Britain is recovering so slowly. Investment picked up a bit for most of 2020, though it never regained its 2008 level. But it turned down again in the last quarter of 2020, as domestic demand failed to take off and Europe’s prospects worsened. The prospects for investment look bleak, as the economy is entering a disturbing new phase of the credit crunch.

Some big firms are sitting on piles of cash. But bank lending matters too, and it is drying up. Banks’ own funding costs have risen as concern mounts in the markets over their exposure to the euro crisis; the biggest British lenders have seen a 40% increase since early February. Now they are starting to pass their funding costs on to their customers in the form of higher borrowing rates. Before the credit crunch bank lending to businesses grew by about 15% a year. Based on the trends of the past three months, it could fall by 8% this year.

This is especially worrying because it means that, despite holding its own rates to record lows and feeding money into the economy through quantitative easing, the Bank of England is ever less able to offset tight fiscal policy with loose money. Britain’s pursuit of austerity, led by George Osborne, the chancellor of the exchequer, is going fairly well. Stimulating growth is going to prove a lot harder.

This article appeared in the Britain section of the print edition under the headline “Double-dip trouble”

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