Binary Options Money Management
This is something that can't be expressed strongly enough if you want to come out ahead with Binary Options Trading.
Before we get into Money Management Techniques, we need to make sure that we are winning more trades than we are losing. So get yourself familiar with our 10 Minute Binary Options Strategy or for even better results, get the Advanced Indicators and Alerts and Join the Trading Community.
Then make sure that the platform that you are using gives back your money on any tied or drawn trade. If they don't and not many do, dump that platform immediately. That is like playing Black Jack in the casino and you get a score of 17 and the dealer also gets 17, but you lose your bet.
That is just madness, there is no way you would even consider playing in a game like that, so don't do it with Binary Options Trading. That is just stacking the odds against you.
That is why I only recommend:
All drawn or tied trades and you get your money back.
Next thing is that you want to be looking for is payouts from 70% and up. Obviously the higher the payout the better, but I have noticed over the last year or so, the percentage payouts has definitely come down across the board, so at the moment on platforms that give your money back on tied trades, the payouts seem to be between the 70% to 80%.
I think that is because traders are getting sharper with regards to how to trade Binary Options Profitably.
What you need to understand about these Binary Options brokers is that they are in business to make money, not just to hand it over to you.
The ideal situation for them is when they have the same amount of traders on either side of a trade. Some sites even show the market sentiment, which is the number of trades they have in either direction. Quite often this is 50/50
Well that is heaven for these brokers, because let's say that they have 100 traders trading $100 that an asset will go up and they also have 100 traders trading 100$ that the same asset will go down.
That means that no matter what the outcome, they are going to pocket $100 from the losers and have to payout $75 to the winners (assuming a 75% payout) which means that they get to pocket 25% of the 100 traders losing $100 which is $2 500 from the $10 000 traded and payout $7 500 to the 100 winners.
This is regardless of the outcome. Of course if you were the only trader taking a trade, then you are in effect trading against your binary broker, which obviously they are hoping that they win and not you.
That is why these Binary Option Brokers are happy to get anybody to open an account, because the more traders they have trading the better the arbitrage situation is for them and the less risk exposure they have.
So, with that in mind the key thing is to protect your capital and build it slowly while putting "the markets money" to work for you.
Firstly a maximum of 10% of your first trade on a Binary Option is the most you should trade. The ideal maximum should really be 5%.
So, if the minimum is $25, in an ideal world you should have a $500 balance, which would be 5%.
The better off funded you are, the better, believe me. If you can, in an ideal situation, you would only be trading with say 1% or 2%. of your bankroll.
However most people generally want to open with the minimum and make the maximum, so this means that they are going to be making trades with 10% of their balance.
No Problem, it is a reality, it just means that you are going to have to build your account up slowly and methodically first.
Well you should be doing that anyways. Yes.
However if you do have the funds, it is better to be well funded than under funded. The stress factor alone with being under funded is intense and does affect your decision making. Don't believe me? Try it out for yourself.
The hard part is doubling your account in the first place, this is where you will need patience and proper Money Management. Of course if you are just starting out, this is the first hurdle you need to pass, that is why I strongly recommend that you get yourself the advanced indicators.
Now that you have doubled your account, withdraw your initial deposit or trade with a smaller percentage of your bank roll.
Plus you won't believe how much less stress you will be under, now that your own money is safely back in your pocket or you are trading with a smaller percentage of your account balance.
So here I will give you a few ideas, based on an account with $1000 in it and 10% first trades, so $100. Just to make it easy with the maths, then adapt for yourself whichever style you like.
We will work off a 75% payout and trying to win 3 trades in a row.
Straight Let It Ride Strategy:
First Trade: $100 win 75% = $175
Second Trade: $175 win 75% = $306.25
Third Trade: $306 win 75% = $535.50
Total Profit $435.50 Verdict: High Risk High Reward
Remove Initial Balance After First Win Strategy
First Trade: $100 win 75% = $175 (Remove your initial $100 and trade with $75)
Second Trade: $75 win 75% = $131.25
Third Trade: $131 win 75% = $229.25
Total Profit $229.25 Verdict: Less Risky Less Rewards, But probably the one you will use the most. Sustainable.
Hold Back Initial + 30% Strategy
First Trade: $100 win 75% = $175 (Remove initial $100 plus 30% of $75 (75-30% =22.5= $52.50)
Second Trade: $ 52 win 75% = $91 (Hold back 30% (91-30%= 27.30 = $63.70)
Third Trade: $64win 75% = $112
Total Profit: 22.50+27+112= $161.50 Verdict Slow and Steady - Sustainable & Less Stress
Note, that many trades payout more than 75%.
I hope that has given you some ideas. I don't know what your risk tolerance or your bankroll is, so I can't recommend for you, but honestly, don't under estimate how stress can affect your trading.
If you take the Hold Back Initial + 30% Strategy, which is going to be the more stressful trade, the first or the second trade?
The first obviously, because you have the potential of losing $100 of your own money, yet with the second trade, there is No chance of losing any of your own money, and in fact even if you lose you will still be ahead by $22.50
How about that third trade compared to the first? No question the third trade is stress free, in fact it will be quite exhilarating, because No matter the result, you will still be ahead financially by $49.80 ( $22.50+$27.30) if you lose and ahead by $161.50 if it wins, with No chance of losing any of your own money.
Believe me when I tell you that it makes it much easier to enter trades when you are not under stress. Try it for yourself.
If you lose a trade, go back to the beginning and the first trade amount.
But here is another idea.
Why not work through all 3 of those, starting from the last one and moving on up to the first one? Anytime you suffer a loss, go back to the very beginning and start again.
Or how about everything I just mentioned, but instead of going for three in a row you go for two in a row?
Just some ideas, but seriously have a plan. It is very easy to get ahead of yourself and trading more than you can afford to.