Managing risk in binary options

Binary Options

The binary options trading is a risky business: we must always remember that there is money at stake in the various operations that will open. Operations can be successful or otherwise, one can also have a trading strategy more than good, but losses will happen the same.

Binary OptionsIt is impossible to avoid them and get only profits: losing is part of the game. However, as we want to point out, sometimes losing is one thing; constantly losing is another. If in fact we have a ratio of profits / losses of eight gains against two losses every ten operations in the long term we will be positive in our account for trading. Even if the ratio falls to around 6 gains against 4 losses, the situation may not be as rosy for the trader.

Strategy Risk Management and Risk Management

Here is briefly explained what is a strategy of “risk management“: every trader should have one on hand and should always apply during their trading day.Among other things, risk management is something we do every day of our lives and at all times: when you go to school, when studying at university, when you leave for an appointment, when you work, and so on. Risk management means in fact analyze the situation in detail, check the possible pros and cons, and finally put into practice a strategy for limiting the risk of failure and increase the chances of success.

Taking a couple of examples of everyday life: when we went to school, we will certainly have to have a week full of potential questions; maybe we know that on Wednesday we have a written test, while on Friday there will be two potential oral questions: Professors of two different materials will question two students as their usual. In such a situation comes in the risk management: the written test on Wednesday is something we can not avoid, then certainly we will study; but about Friday? We simply have to evaluate several factors: what is the matter easier of the two? Which of the two professors is “wide votes” when questions? I was already questioned recently in the matter of teacher, and then I have a better chance of not being called? Or I was one of the few not to have been called yet?

Are a few of the many questions that a student would consider in such a situation, to put into action a successful risk management. Maybe the right strategy would be to be questioned in the matter voluntary easier between the two; and use the fact that they were interrogated in our favor: we could say another professor had just “suffered” an interrogation and being quite tired. In short, I am trying to be pardoned.

It seems strange to say, but risk management is applied in this way also to the world of binary options trading: we must consider several factors, implement different strategies; all with the purpose of decreasing the risk and increase the chances of success. Let us see some basic tips “risk management” that every binary options trader should follow absolutely.

First golden rule: Invest only what you can afford to lose

A phrase that is repeated almost always, but nevertheless goes unnoticed in many binary options trader. Once you open an account with a binary options broker you must always choose to deposit an appropriate figure your pocket, or a figure that does not make a difference in your financial stability. The figure must obviously be at least equal to the minimum deposit required by the broker (and if the minimum deposit is too high for your pockets you can: find another broker; just wait for the time to accumulate the necessary sum). 

Managing risk in each individual investment

Depending on how much money you have deposited with the broker will have a different figure available to trade binary options. But the question arises: how much should I invest for each transaction I open? We have deposited $1000 for example: should I invest $100 for each transaction? Or much less as $20? Or much more like $200, maybe because my strategy is giving me signals “strong” and more reliable than usual?

First: Never invest the full amount that you have deposited in a single operation! You risk burning the entire account in one minute and also here it is not gambling: for what you are casinos. Finding the right amount to invest depends on your trading strategy: if you are trader “aggressive” on the market you might spend slightly more than usual, if you are more “conservative” might decide to invest less of the norm. Anyway, we leave you a formula that can be useful to calculate your investment:

Figure available to invest (multiplied by) a percentage of the amount you want to risk.

That is, with the example of $1000 and wanting to risk anything more than usual:

$1000X5% = $50

This is the figure that you should take chances with your operations open: you can open a single operation from $50, or two steps from $25, or even two operations from $10 and $30. It’s your choice, or better to say, it depends on your strategy of binary options trading. Normally it is a figure that ranges from 3.2% to 5%: risking more than 5% of your account is not recommended, especially for inexperienced traders who are just beginning to trade binary options.

Education & Strategy of winning moves

Knowledge is power, if a trader knows how to study and analyze charts, how to interpret the movements of prices using technical analysis and is always updated on the latest news regarding the most important market where is operating, it will greatly increase your chances of success. It true that the success rate of departure in the binary options trading is quite high: 50% chance of victory as well as loss. But with the right education and the right strategy, then not going to the event or the fray, you can increase your chances at very favorable. In case you are in “fasting” of technical analysis and want to know more about it.

“Paper trading”, demo accounts and diary of the trader

For the uninitiated, the “paper trading” would be a kind of method to “prove” the binary options trading without risking money or having to open an account with a broker. But the paper trading can be done once you have opened an account, the substance remains the same, you take paper and pen, and write all the operations that, following a strategy, would open with a mysterious account with a broker. It marks how much money has been invested, the type of operation and time are noted particular identified, and at the end of reckoning. In this way, day after day and week after week you can test a strategy without risking a single dollars.

The importance of a demo account instead is almost obvious: have the opportunity to access the trading platform, test the waters, take my hand, opened the first operations (without risk of losing real money), is priceless. It is a great advantage for novices of binary options trading that can cope well, face to face, through the trading platform of the broker itself, in complete safety. Unfortunately, not all brokers allow you to open a demo account; or some brokers offer a demo account for a certain period of time or only under certain conditions of storage: always inquire at your binary options broker.

The last two words are needed on the diary of trading is simply a log book, that’s all. You’ll have to write every day all the operations that you have done and mark the results: at the end of the day so you can see where you went wrong and how you can improve your strategy in the future, having a “record” of transactions.

Conclusions

These were just some of the possible recommendations to be applied to binary options trading: on the internet, on forums concerning the trading of binary options, as well as on our own site, you can find more information. But the basic rule that unites all strategies is the following, always use common sense and stay cold, logical and rational.

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