Money Management With Binary Options! You need to anticipate your strategy’s risks to manage your money well. As a new or seasoned trader trying a new system, you cannot know what to expect and, therefore, cannot make quality predictions. To avoid this trap, you must try new strategies and trading in general with a demo account before you invest real money. Money Management With Binary Options
Why use a money management strategy?
Depending on which strategy you apply to Binary Options and how well you apply it, you will win a certain percentage of your trades. For example, let’s assume you have traded a strategy for some time and have won 70% of your transactions. If you apply this strategy for 100 trades, you can expect to win 70. On the other hand, though, you will also lose 30 of your work. Some of these losses will come in a row. It is only a matter of time until you lose as much as 10, 15, or 20 trades in a row, even if you apply your trading strategy perfectly.
Prolonged droughts like this are the main reason many traders fail. This is because they don’t use a money management system and either invest a random or a fixed amount for each trade. For example, imagine a trader who opened an account with $1,000. He supports $100 per trade, which seems secure enough to allow a few losing trades.
What happens if this trader hits a losing streak after a few winning trades? His balance will soon shrink to $500 or less. He will get scared and reduce the fixed amount he invests. The process will repeat itself until he has lost all his money.
What is a good money management strategy?
A good money management strategy helps you to survive a losing streak. To do that, it needs to be flexible. In other words, you shouldn’t invest a random or a fixed amount per trade but a fixed percentage of your starting balance. Money Management With Binary Options
The exact percentage should depend on the risk your trading strategy holds. The riskier your system, the less you should invest per trade. A good rule of thumb is to divide 100 by the lost transactions your system will create for 100 businesses. For example, when you’re system wins you 70% of your transactions, it will generate 30 losing trades for 100 firms. You should not bet more than 3% per trade (100% / 30 = 3.33%). Of course, you can bet even less to be safe. Of course, you can adapt the exact amount to your preferences, but this will give you an excellent place to start.
You might think you will never have 30 losing trades in a row. You will, however, have ten losing trades in a row eventually and 20 losing trades with only a few winning trades in between. Investing only 3 percent of your money ensures you still have enough money left to survive these drawbacks and make a quick comeback once your luck starts to turn.
If you manage your money poorly, even the best Binary Options strategy won’t help you survive these drawbacks. Therefore, a sound money management system is essential to secure your success.
How to know what to expect
The difference between trading Binary Options successfully and losing all your money is not so much the trading strategy you follow but your money management. Read this article twice to understand what money management is and how you can find a good money management strategy.