Risk Management in Binary Trading

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Risk In Binary Trading WhyoptionsWith over a dozen years of experience and mastering the art of trading, I still need to mention that with any investment lies a degree of risk. There is no amount of experience and knowledge that can prevent you from losing money at any given point in time; even Warren Buffet lost money when the economy crashed. Many new traders stay focused only on the rewards without weighing the risks. This is where complaints about brokers arise that they are scammers, thieves, liars, etc. Most of the bad publicity written on forums about brokers is from traders not being well prepared for risk.

A general rule for efficient risk management which is used by professional traders is that not more than 5% of the account size should be exposed to the market, and that goes for each trade. For example I can put it simply, if you have a $200.00 binary options account, you should not have more than $10.00 open to the market at any given time. For example, if your broker offers $5.00 minimum to open a trade, ensure that you do not have more than two positions open in that time frame. Trading anything more than this is a risk.

Binary trading is slightly different to Forex in that when trading Forex you are able to see when you are losing money and you can close your position early and cut your losses. In Binary options trading, unless your broker offers you a small percentage back on your investment when you are out-of-the-money or if you are able to sell the contract off before the expiry then the reality is that it is an all or nothing type of market.

Here are a few pointers to help you manage your risk:

  1. Invest only what you can afford to lose – Meaning that you can mentally prepare yourself for the worst case scenario. If you can’t afford the loss of $2000.00 investment, then invest less.
  2. Look at past history – Assessing the past will make a great impact on the future getting to know the movements of a certain asset within the market will create a pattern from which to trade from.
  3. Invest in what you are familiar with – Not all newsworthy assets are going to make you money. If you are comfortable with an asset that is not the most popular however you have the knowledge about it to make an educated move, then stick with that.
  4. Have a plan – Anticipating the market changes and the effects they will have on an asset is a plan in itself. Following news market breaks will further assist you in predicting what will happen with a particular asset.
  5. Conservative trading – Do ensure that you do not over invest and keep in mind the 5% general rule. Also use a demo account before you start to trade with real money to test the assets and market movements before using your own money.

There is no eliminating risk, this is a standard in our lives when we make a decision to do anything. However there are alternatives to reducing the risk. I trust some of my advice will lead you and guide you in your trading. I also recommend that you read and look at some of the most efficient binary trading strategies available on the website.


Minimum Deposit Amount Of Binary Options Brokers

Broker Bonus Min Deposit Payout US Traders Review Open Account
GOptions Up to 100% $200.00 Up to 90% Review Visit Broker
24Winner Up to 150% $200.00 Up to 85% Review Visit Broker
OptionBit Up to 100% $250.00 Up to 100% Review Visit Broker
BO 360 Up to 50% $250.00 Up to 80% Review Visit Broker
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Jason B Kruger

Professional Trader at WhyOptions
Jason B. Kruger is a Professional Trader & Chief Editor for WhyOptions.com, who is considered ‘The Authority’ on Binary Options Trading Strategies, Reviewing Brokers,Providers and their Products.
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Binary Options Trading carries a high degree of risk to your capital. Please ensure you fully understand the risks before you start trading,and if necessary seek independent advice. Whyoptions advises its clients to read carefully the terms and conditions of each broker before opening an account. Copyright © 2014. All Rights Reserved - Whyoptions.com