Binary options are one of the most popular forms of trading today. They allow their users to either predict a call or a put on their desired assets in a predefined time frame based on their analysis of the underlying assets. This provides the trader with a 50% chance of successfully winning the trade, making binary options a highly profitable but equally risky niche if you don’t place your options carefully.
Managing your money and keeping your risks in check are both very important parts of trading binary options. You need to adopt a money management strategy to amplify your gains while minimizing your losses. It is also significant for you if you are a beginner so that you don’t eventually lose all of your capital and get entirely wiped out of the market and the site you choose to trade with.
Money Management Strategies
Here is a list of things you can do to learn how to invest your money wisely and handle it well.
The Percent Rule
The percent rule is considered the most effective strategy to minimize losses. It is also fairly easy to learn, making it the optimal strategy for a beginner. In this strategy, you allot a percentage of your balance to investing. It can be 1% for a beginner and 5% for an experienced trader. Either way, the percentage needs to remain small so that even if you lose the trade, you still have the larger portion of your capital secured.
The Martingale Strategy
This strategy is fairly controversial due to the high-risk factor it entails. In this strategy, you are supposed to double the size of your trade to recoup the deficit after each loss. For example, if you trade $50 and lose, the next trade should be $100 to recover from the previous loss.
The Fibonacci System
This particular strategy is based on Fibonacci numbers, and the list of these numbers goes as follows:
● 0
● 1
● 1
● 2
● 3
● 5
● 13
● 21…
Traders using this strategy are supposed to make smaller investments when they lose and bigger ones when they win. This is because the logic states that you generate profits if the winning trades are greater than the losing trades. It is best to start with smaller amounts and keep a check on greed, as that can cause some major downfalls.
Risk and Reward Ratio
This particular strategy revolves around how much of your capital you are willing to lose on a sole trade, and then, keeping that in mind, you hunt for opportunities with a comparable potential return on investment
For example, if you have $1,000 in capital from which you are willing to lose $100, do you need to look for available trades with a potential $100 or higher return? This strategy ensures that your gains are enhanced while your losses are minimized.
Retrospective Analysis
This method is an add-on to any other strategy you may have employed. In this method, you keep a journal of all your previous and ongoing trades. You need to keep track of what signals you utilized when you conducted your trade, what your underlying assets were, what trading device you used, and even your mood and location. After completing each trade, note your results. Make a habit of returning to this journal regularly and thoroughly studying each of your trades so that you can learn from your mistakes regularly. This will help you identify reasons for your losses and wins while giving you a constant opportunity of improving yourself.
Risk Management
You can reduce your losses by managing your money well, but you also need to do a few small things as part of your trading routine to manage your risks at the same time.
Select Your Trade Size
When making a binary trade, keep your capital in mind and take your risks accordingly. It is advised never to risk more than 3% of your entire balance. This would help you ensure that even if you lose a trade, you would still be able to prevent unbearable losses.
Further, once you gain some experience, you may increase the percentage of the risk you take on for better and larger outcomes.
Employ Trade Psychology
When trading online, you are bound to face losses. Once you lose a trade, it is natural for you to instantly want to recover from that loss by investing a larger amount than the one you just lost. In such a scenario, it is advised that you not act on your instinct but instead think wisely and consult trade psychology.
Further, if you do lose the money, you should invest a smaller amount in your future so that if you do lose it again, the loss will not be as vital. Moreover, if you win that trade, your confidence in yourself will be restored.
Conclusion
Binary options trading is a fairly risky niche, and thus it is advised for a new trader to employ some risk management techniques. These can be the percent rule, the martingale strategy, the Fibonacci system, or the risk-reward ratio.
Lastly, studying deeper regarding each asset’s history is the key. You need to analyze past events so that you can make some hefty profits.
