Money Management Is King

Money Management Is King

Submitted by lsf273 on Thu, 01/09/2014 - 12:35

The main purpose of employing a proper and effective money management strategy in binary options trading is to reduce the risks to comfort level in addition to maximize the profits. Fast and careless trading might help traders to earn some quick profits but it can make losses to pile up quickly as well. Therefore, you need to be disciplined while trading and the best method to do so is to manage your money.

The Basic Money Management Strategy:

One of the basic strategies used by veteran traders is to specify a percentage of total funds to trade and never exceed that limit. For instance, a 10% strategy is very popular among traders and very simple to implement as well. A trader having $300 in his account will only trade $30 in a single trade. If the trade ends out of the money, the trader cannot lose more than $30. Furthermore, he will still be able to recover from this lose with the help of remaining funds in future trades.

The Compounding Process:

In this regard, even lower percentages can be used. The lower investments will definitely slow down your progress rate yet you can take advantage of the compounding process. You should not face any difficulty while working with lower investments even though each broker will require you to submit a minimum initial amount. You can go as low as 2% to considerably reduce your financial risks.

Money Management with Strong Trades:

Sometimes, a trade appears certain to end in profits and traders tend to increase their investment during that trade. But the question is should traders raise their investment amount during these times and to be honest, it is the trader who should decide. You need to remember that no trade is guaranteed to end in money despite of how strong the indicators are. There are always chances that you might lose the money you invested in any particular trade. Keeping this very important fact in mind, you should not invest such an amount in any trade that you will eventually feel difficult to part with.  

Money Management Including Assets:

A money management strategy for binary options trading should not account only for percentages and figures. You should also give due importance to assets being used for trading. In fact, a diverse and broader range of investment possibilities will help you to reduce the risk. Some traders have their favourite assets and they mostly trade with them. This might be beneficial at times but it will limit your opportunities. Therefore, it is important to branch out to other assets as it will provide you some sort of loss protection.

Number of Wins and Losses:

This is the most important money management strategy in binary options trading. Once you reach a certain number of wins or lose a day, you stop trading immediately. However, you should specify a certain number for loses otherwise you would keep on losing trades before you reach the number you have specified for wins.

Abovementioned are some of the most important and effective risk management strategies for binary options trading.  Use of any one or all of them will definitely help you to manage your money properly and lower your risk while increasing your profits.