Binary Option Risk Management and Strategy

December 30, 2012

mange the binary options riskTrading binary options has totally mainstreamed in the past months and will remain a very attractive trading alternative to CFD and Forex trading for the next years to come. What really speaks in favor of binary options is the large returns and the easy concept. Although it is one of the trading styles that very easy to learn and much fun, it should not be forgotten that every kind of trading always involves a certain amount of risk.

No Return without taking a Risk

Just like every other aspect of trading, to be successful, binary options trading needs preparation and initial effort to learn. Even though some rumors say that it is an easy way to gain much money with little initial bankroll, one should never ignore the aspects risk and strategy. Constant wins and profits without any kind of strategy are just as unlikely with binary options as they are with any other kind of trading product. Also, there is no binary options strategy with a 100% guaranty of success. Losses belong to trading – period. One should learn to deal with them. With that out of the way, it is important to say that with a strategic approach the likeliness to earn money with binary options can be raised significantly. Successful binary option trading is possible.

Binary Options Risk Management Ground Rules

Every trader has a different risk tolerance and just like every trader is different, binary options trading strategies should be build differently. Also, the risk level always depends on the trading account. Naturally a large trading account is much more effective than a small one with 100 to 500 Euros. Oftentimes those accounts will simply not survive a longer loss streak.

Not all the eggs in one basket

For accounts, starting from 500 Euro it is advisable that one does not invest more than 5% of the entire trading capital. To be even more secure, one can use the golden rule of forex trading: Never invest more than 0.5 – 2 % of your initial capital. If the trading account is big enough to grant that, it is advisable to live by that rule.

In contrast to forex trading, binary options trading does not have a stop loss. The maximum loss is always determined by the chosen trading amount.

Small accounts require adjustments

Almost every broker requires a minimum trading amount. Oftentimes this trading amount is in between 10 to 25 Euros. This leads to the fact that the mentioned risk management rule will not apply to those accounts. Choosing a broker with a very small minimum trading amount will grant that small accounts have a chance of being profitable, as well. The Broker Banc de Swiss for instance offers a minimum trading amount of only 5 Euro for the 60 second trading. This makes it possible to control a small amount with maybe just 200 Euro deposit.

Very aggressive binary option trader sometimes even use very small accounts on purpose to earn money with the martingale or anti martingale strategy, also known as “doubling binary options”, in order to reach a quick deposit growth. If the strategy fails, the account is charged with new capital.

The binary options strategy is very risky and every trader has to decide for themselves if he is willing to risk his entire deposit at once or if he rather uses a long term strategy.

In any case it is good to check out our ground rules and strategies for binary options trading.

Read on – the best binary option broker: