Balancing Your Binary Options Bankroll
If you’re going to be trading binary options, it’s important that you understand that what you’re going to be doing will always entail risk. Binary trading is a form of betting. When you place a binary trade, you are betting a given asset is going to be trading at a certain level at a certain time, and you’ll either profit or lose money based off of your gamble.
Fortunately there is a lot more room for skill and intellect with binary options trading than there would be in a spin of a slot machine, so it’s not a total gamble. Mitigating risk comes down to having a method, following it, and managing your bankroll carefully.
How Much To Trade – How Big Of A Bet?
Managing your bankroll also involves deciding how much to bet on each of your trades.
The biggest question we get from new traders is how much should I risk on each trade. It’s common for new traders to invest a large percentage of their bankroll on their trades—but this is a mistake of overconfidence and impatience, largely the latter. The rule of thumb is to trade between 1-2.5% of your total bankroll on any given trade depending on how confident you are in the trade.
You aren’t going to push ahead faster by blowing your trading account in the beginning. A very small percentage of your account, 2.5-5 percent or so, is about all you should be considering investing on a given trade. Which would you rather do—have a couple of huge wins, followed by a couple of huge losses (and the now empty account), or consistent, small profits which add up over time into major success?
Managing Bankroll From Within A Trade
You can also manage your bankroll while you’re in a trade.
Screenshot from 24Option.com
If a trade is going against you, you need to learn when it’s time to get out and take your losses instead of letting them stack up against you. This is something you should integrate into any trading method you create—you always need to have rules for deciding to enter a binary options trade and rules for when you’re going to exit your trades. Those rules should be tested using historical data, and then demo tested using virtual money, before you ever go live with them.
The brokers we list offer early closure where you can get out of the trade now for smaller profits or smaller losses. These close out periods usually last up until the final few minutes of the trade.
When you make a trade, whether you win or lose, you’re going to be paying for it in the form of a spread. Spreads for binary options work differently than you may be familiar with if you trade forex. Truthfully, the spreads in binary options, while claimed to be zero or no-spreads, or zero spreads are much higher than they are for a lot of other markets.
So when you lose a trade and you simply “get nothing,” you’re not breaking even—you are losing money. You lose however much you initially risked in your trade. And when you win a trade, you’re still going to lose the spread, meaning that if you risk $100 and the broker pays out 90% return, you have a 10% ‘spread’. So your trades over time will need to more than compensate for that loss. That’s why you absolutely must find a method that lets you profit consistently and reliably. You need to be able to repeat your wins and predict your losses.
A lot of new traders don’t like to hear that they’re going to have to be cautious when they start trading binary options, but the reality is that caution is an important component in your trading methodology. You can trade binaries for a living, but only if you treat it like a profession, and that means taking some time to trade and develop a professional method. If you’re serious about this business and you come up with a specific, detailed plan for managing your bank roll and trading binaries (and then follow that plan), then you can succeed at trading.