In trading binary options, like any other asset (currency, stocks, futures, etc.), considerable attention should be paid to capital management. Binary optionsDespite all their ease of use, they remain a speculative instrument, working with which requires money, so you can’t do without money management.
Important articles about binary options
Wealth Management Tactics in Binary Options Trading
If you are not familiar with this definition, then in a nutshell money management is strategies for portionwise investment in transactions and increasing trading volumes with capital gains…
In addition, money management includes tactics of protecting funds by investing in various instruments, portfolio investment issues and other options for how to properly manage your deposit.
Due to the fact that binary options in general is a rather simplified trading tool, which involves only two options for closing a deal – profit or loss – which, after the conclusion of the contract, the trader can no longer influence, there are a limited number of money management tactics for binary options. Let’s go through them.
1. On a binary contract no more than 5%
As with other exchange-traded instruments, ForTrader.org recommends use no more than 3-5% of the capital in one transaction…
That is, having a deposit of $ 1000, you can conclude a contract for only $ 30-50. If the minimum contract amount for your binary options broker is $ 5, then your minimum deposit must be at least $ 100-170. What is it for? To wait out a series of losses, while having a margin to continue trading. It is rare that a series of unprofitable trades is more than 8. At the same time, during this time the trader has every opportunity to correct the strategy and understand the cause of errors. Therefore, you should not go all-in, even if you are very confident in success.
2. Use your profit wisely!
The second rule of money management in binary options follows from the previous rule of money management: increase the transaction volume gradually. With each profitable transaction, your deposit grows, which means that the contract amount should also grow, because we calculate it as a percentage.
A smart trader never increases his trading deposit by the full amount of profit… He leaves about 50% for withdrawal or in case of lingering losses.
Consider an example: you have a deposit of $ 1000 trading at 3%. For 10 profitable trades, you received a profit of $ 255 ($ 30 * 85% * 10) to your account. 125 $ of which it is quite reasonable to withdraw or postpone, 130 – to add to the total amount of the deposit and open transactions further not by $ 30, but by $ 34 (1130 * 3%). Keep in mind that it is best to increase your trading deposit by the amount of profit after a series of successful trades, when the amount of profit is already sufficient to feel the difference.
This rule of working with binary options (as well as with other trading tools) will help you feel confident and give you the opportunity to see the results of your work, as well as teach you not to stand still and develop yourself and your capital.
3. Risk management of losses in binary options
Continuing the topic of money management and risk management in binary options trading, we would like to remind you about Stop Levels. Frankly, this point is more suitable for the topic of the psychology of trading, but still, in many ways it is related to capital.
Determine for yourself the number of losses in a row and the amount of loss, after which you need to reconsider your trading strategy!
Sometimes, getting into a rage and wanting to recoup, we make a lot of rash deals. In order not to lose capital thoughtlessly, pause if you feel that the trade is out of your control… It will help you save your nerves and money.
4. Hedging and diversification
Well, the last point is hedging and diversification. We have combined these points because they are largely borrowed from other markets. It will be difficult to apply them in practice as a money management strategy for binary options.
Hedging involves looking for assets with a high correlation (with a very similar movement of quotations) and the acquisition of two opposite contracts in the direction of them. Then the minus in one deal should be covered by the plus in the other. But, since the profit on binary options as a percentage is always less than the loss, this tactic fails in advance. therefore hedging with binary options is only possible when trading the underlying asset at the same time, that is, currency pairs or stocks. In this case, hedging is next to diversification because you are using multiple markets for a common strategy.
This is not to say that this is a very simple activity – hedging and diversification of binary options – but with a serious approach it can bring good profits. Therefore, ForTrader.org magazine recommends that you pay special attention to this point.
Findings: Despite all its simplicity, binary options remain a risky investment asset. Therefore, do not relax in advance. There are few money and risk management strategies in binary options, but even they will help you improve your results in trading with this tool. It is never superfluous to approach trading wisely.