Binary options money management is an important aspect that goes hand in hand towards defining a successful binary options trading plan. Money management is essential in binary options trading, just the way it is in every day life, not to forget, in forex trading as well. Binary options money management is one aspect that is often overlooked. Similar to forex trading, binary options investors need to have a preset trading strategy and discipline. Binary options trading can be tricky, largely due to the fast results. Such an environment can easily trigger the human emotions and even though you keep depositing in small amounts, when it comes to consolidation the bigger picture shows a different scenario altogether.
Any reasonable trader/investor will have to practice proper money management strategy. There are times when such investors come prepared with a great trading strategy, and will not have to spend too much time about the risks involved if a proper money management strategy is in place. There is no such thing as effective traders, let alone guaranteed profit trades, if you don’t have access to a strong strategy that enables you to manage your financial portfolio.
Binary options money management is a defensive concept that sees you through to the next trading day. Binary options money management dictates whether an investor can afford to trade additional positions taking the risk factor into consideration. The gold rule of forex trading applies to this fact, which states that investors should trade only if they have additional money that they can afford to lose.
In terms of strategy, Binary Options Money Management can be traced to a few specific aspects of trading. Factors such as the available capital for a trader to allocate to a particular trade, the amount of capital a binary options trader is willing to lose on a particular trade, the size of the trade a trader can invest in are just some of the few factors that directly impacts the overall money management strategy in binary options trading.
The purpose of any investor be in forex or binary options trading is obviously to profit. Whether it is long term or short term is another story. However, binary options investors need to come to grips with the fact that not every trade executed can be a profitable one. Investment losses are part of the trading experience and is inevitable. However, a good binary options money management strategy can help investors to minimize such losses and ensure that investors make more profitable traders when compared to trades that are lost.
Making wild guesses
There are times when you feel that entering a position on a particular asset is bound to make you a profit. This is normal and is usually associated to emotions. No matter what trade you wish to enter, always back up those ‘gut feelings’ by verifiable facts. Having a cautious approach to investing in binary options is much safer than playing on the gut feelings.
Never risk your entire capital
When you enter a trade (no matter how great it may be), always ensure to only invest conservatively. In fact a 10% of your capital or depending on the allowed minimum trade would be a more conservative amount. Bear in mind that irrespective of the outcome in binary options, there is always a risk factor involved. This means that when if invest 50% of your capital, the risk of losing your investment is just the same as the risk of profiting from the trade. A conservative investment strategy saves yourself the pains of losing your entire capital should the trade go against you.
Diversify your trade portfolio
Binary options trading offers a lot of choices to the investor. A good binary options money management strategy involves diversification. The volatility that comes with trading currency pairs is far different than say trading commodities or even stocks. Of course, the payouts might differ based on the instrument that is chosen. As the adage goes, never put all your eggs in the same basket.
Keep an eye on the news
We have dedicated an entire article towards how event based trading can be helpful in any trading scenario. Besides conducting your own research investors also need to look out for any economic news that has the potential to influence your trades. Due diligence pays off.
Expect Loses when you trade
Losses in a trade need to be accepted on a positive note. The implications when a trade that goes against you can effect the future or consecutive trade decisions. Anticipating losses while trading, be it forex or binary options can help investors to identify the factors or aspects that might have been overlooked. Losses should be seen as a stepping stone rather than having it effect you.
Start slow and scale up
This plays an important role especially for beginner investors. Never fall for the emotions and invest the entire amounts straight away on a single trade. Trading in small amounts always helps you to take a disciplined approach. Most binary options brokers allow a minimum trade amount between $10 and up to $30. Utilize this advantage and ensure to trade patiently.
Do not expect to make profits with binary options trading from the moment you make your first deposit. Whether you invest $200 or $2000 the same principles apply. Invest in small amounts until you get the feel of the instruments that you are trading. This will eventually build your confidence levels and help investors to automatically look out for the indicators in order to prepare their trading strategy and will eventually help to minimize the losses. One of the key factors that defines successful traders and investors comes down to having a good binary options money management strategy.