Managing your money while trading binary options

Risk Management

Money management usually consists of two main parts which are taking risks and being disciplined. In this article, we are going to outline the main strategies that successful traders implement to manage their initial investments. But remember, it all depends on how disciplined you are as a trader.

Beginners’ trading mistakes can make you lose more money than gaining - that’s a fact. Hence, as part of your strategy, you should highly consider money management. While ensuring that you have the required amount of capital to trade, this will also give you a clear idea whether your trading approach is working effectively. Most importantly, it will help you avoid unnecessary losses and create a more dynamic environment for personal, financial as well as social growth.

Create your own personal ratio of Win vs Loss

This is the simplest money management strategy and the most adopted one while trading. It requires self-discipline and will eventually help you in knowing whether your trading approach is good or not. For example, if you are a daily trader, set your wins against loss ratio so that you keep track of your progress as per your investments. Furthermore, you can record your daily progress and you will be aware of whether your main trading strategy is performing or not. Yes this is quite time consuming, but this simple step in your trading flow can determine whether you are on the right track. (Read on Trading Strategies for Beginners)

Set up your risk level

risk level

The uncertainty of trading often pushes novice traders to invest until they get self satisfaction of making high returns. This often leads to making continuous investments without any particular researches made on the different aspects that define whether you will win or lose. In short, novice traders are overwhelmed by the want to make profit. Successful traders often set their risk level to the amount of wins and losses they can afford with their investments. For instance, one particular trader can have his Wins level to 10 Wins - This means that when the latter will reach this milestone, he will stop trading. As such, you also have the Loss level. We recommend that you stop if 25% of your trades are losses.

Do your research

Doing your research implies that you are well aware of the world economy and that you identified the different trends that are affecting the assets. This will help you make the appropriate investment in the correct assets and at the right time. There are two ways to have sufficient information and knowledge before investing. These are Fundamental and Technical Researches. Both of these should be done together.

One particular case scenario is whereby Mr John seeks to know what is happening in the world economy by reading the financial reviews and newspaper (Fundamental Research). At the same time, he uses BigOption’s user friendly platform to identify trends and fluctuation on the different assets (Read on Top 3 Technical Indicators)

These researches complement each other as Mr John knows the trends and how these are affected by world events. Having these important information, he knows where and when to invest his money.

Diversify your investments

Another approach that traders adopt is diversification of their initial investment. As part of the risk management strategy, this enables the trader to invest in different assets while minimizing the risk of losing the investment. Risk is an integral part of trading and traders need to understand that binary options allow them to minimize such hazards by using various strategies to eliminate any risk attached to their option trading activities.

Importance of risk management

The 5/15 is one of the most used investments diversification by beginners and experienced traders. It offers the opportunity to the trader to invest in different assets at the same time while minimizing the risk factor. This approach is simple as the trader invest only  5% of his capital on 3 different assets thus trading on different assets portfolio. For example, If a trader wants to invest his $10 000. He can either invest 15% amounting to $1500 on a single trade or trade on 3 different assets which will amount to $500 per trade. (Read more on Risk Management)

Removal of your Initial investment and percentage profit

For those who are more cautious on their investment, this strategy can help them have a safe and steady approach to their own personal trade pace. In fact, this approach is less risky and is more adequate to occasional traders. The amount of profit made is relatively low per trades hence taking more time to generate high revenue.

For example:

First Trade:

If the initial investment is $ 250 with a payout of 75%, after the first trade this will equal to $437.50

Second Trade:

After removing the initial investment together with the 15% of the profit the remaining, that is your investment capital, equals  $159.16 .

Hence, the total money saved is  $278.125 after the first trade.

The three ways of trading

Risk Management Techniques

Depending on your time schedule, financial status and internet accessibility, we provide the right tools to trade. There are three ways of trading namely - Trading Signals, Manual and Social Trading. The advantage of using BigOption as your broker enable you to switch between these three approaches.  But what are they and when to use them?

  • Trading Signals is whereby you receive immediate alert on your smartphone, tablet, email or simple text once there is an opportunity to trade. If you are new to trading and don’t want to be overloaded with researches consider adopting trading signals.
  • Manual Trading on the other side requires that you do your research, both fundamental and technical, before making the decision of trading on a particular asset. This strategy is most used by trade leaders who analyses the world market to know the fluctuations of the assets’ value.
  • Social Trading personified as ProFollow on BigOption is tool is useful to trade beginners. In fact, Social Trading is the top list of Trade Leaders which you can follow. As a novice, you will only be copying every move of a particular leader according to the time frame, investment per trade and the investment limit you’ve previously included in your trade parameters. The leaders dashboard has information about the amount of profit made and the success rate for example. (Read more about Social Trading)

Logic and not emotions

True, trading plays a lot on your emotions. Once you start getting profit out of your initial investments, you will tend to feel the zeal and thrill of an early bird. But, this is the moment where your emotions will be leading your judgements. There are several cases where traders make decisions upon emotions and this results in stressful situations. Human beings are greedy by nature especially when we are in a successful trend involving money making. It’s important to take a step back and have an overview of your financial situation and don’t make decisions that would hinder your everyday life.

For some experienced traders, binary options is their main source of revenue to pay the bills while for beginners this represent a way to make profit. But, the line is thin between making profit and losing it all. Remember, Binary Options has only two options either you win or lose.

Take time to learn

Be it you are a beginner or an experienced trader, Binary Options trading makes you learn a lot about the world economy and their effects on the different trades. However, you should also be self-aware by learning about the different mistakes as well as successful trades that you made.  As you go with your trades, you will identify the patterns that led to your successes, failures and how these affected your initial capital and your profit making.  This approach is a self-oriented version of the technical analysis. Your money management strategy should also take into consideration the element of learning the trends. BigOption.com academy has all the required support for the trade novice to have a kick start in their trade experience.

What you should take out from here?

In this article, we outlined some of the main approaches that you can adopt to manage your money effectively while making profit. It is important to be constantly aware of your financial status and make sure that you are not having negative effect on your social and professional life. But, as we mentioned earlier you should  develop self discipline and know your limits because at the end of the day, you define your own trading experience.

We believe that every trader's’ experience matters - How is  your money management so far? Comment below.

 

Priscilla Camryn By: Priscilla Camryn
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