Binary Options – Risk Management Guide
Alex

LEVEL 10 : SENIOR

REVIEWS 9 | REPLIES 84

#1414

Alex

August 24, 2015 at 10:13 pm

Applying proper risk management to your binary options account is critical to protecting your capital. Without capital you simply cannot trade profitably. Your trading account should not be seen or treated any differently than a business. I have seen many traders come and go throughout the years. They always end up asking me why it did not work out in their favor. After looking at how they managed their account the answer is as clear as daylight. Poor money management! Just like with any other financial instrument, money management is key to your success or failure. Some traders get away with it in the short term, but it comes back to haunt them in the long term.
Without capital you cannot trade! Any trader’s number one priority should be to manage and protect their capital, also referred to as your initial investment. Before you can even think of making, or building a profit, you should learn to master risk management. I cannot stress the importance enough! This mistake is made by newbie and so called “seasoned” traders alike. This is mainly due to lack of discipline. Poor discipline leads to poor money management, which leads to poor risk management. It’s a snowball effect that repeats itself daily, leading to failure. Failure to protect capital and failure to see a penny in profit returns.

Percentage Risk Per Trade

Once again people’s opinions will differ when it comes to this topic, but there is a rule of thumb that should be used. It is important to note that experience should not effect the % risked per trade. This is trading, not some predictable movie ending. There are no guarantees. Stay on the conservative side. One should risk no more than 1 – 3% of your account balance on any given trade. Most importantly never risk more than what you feel comfortable with. I am not saying that you should risk 5% because you just had a espresso and feel all psyched up. This applies to lower risk, not higher.

When To Increase Risk Percentage

If you read the article this far you should already know the answer to this question. We never increase risk PERCENTAGE – EVER! Stick to the recommend conservative range. Although we should never increase risk %, we defiantly can increase risk amount according to your account balance. Notice I mentioned accordingly. Let’s look at an example to clarify things…

  • Account Balance: $1000
  • % Risk Per Trade: 2.5%

We will risk $25 on any given trade. What if our account balance has increased to $1250 at the end of the month? We simply take 2.5% of our new balance. We will now risk $31.25 per trade. Although the dollar amount is more, we are still sticking to the 2.5% risk per trade. This is where the discipline comes into play. Now some people might adjust their 2.5% after every single trade. There is absolutely nothing wrong with that, although it does complicate things somewhat. At the end of the day it comes down to personal preference.

Money Management Don’ts

  • Revenge Trades
  • Doubling Up
  • Trading Decisions Based On Emotions
  • Trading When Not Focused

These 4 Don’ts can make the world of difference to your overall trading experience, but most importantly – account balance. Applying what you have learned is completely up to you. Nurture your account and watch your account balance grow. Soon enough your seed will grow into a money tree!

Dewey Colon

LEVEL 2 : NOVICE

REVIEWS 7 | REPLIES 4

#1478

forexpipit

August 25, 2015 at 8:03 pm

Hey Alex

Great article my friend! I have heard this over and over again and it is finally sticking this time. I used to think that this is a nonsense story. Not any more. When I started I traded at least 10% of my account per trade. It wasn’t long and BOOOOOM!! I’m telling you – Never again, I have finally learned my lesson…

 

Steve White

LEVEL 2 : NOVICE

REVIEWS 7 | REPLIES 6

#1490

Stevie

August 25, 2015 at 9:16 pm

Risk Management plays a huge role in my trading success. I have recently added a semi martingale strategy and I’m very pleased with the results this far. Don’t worry I know what the risks are, this is why I trade with 2 different accounts. One with fixed risk and the other with martingale like money management. It is a good way to make an extra bonus in my opinion… only if you know what you are doing 😉

 

Ivan Williams

LEVEL 2 : NOVICE

REVIEWS 8 | REPLIES 5

#1606

binaryking

August 27, 2015 at 10:21 pm

I normally trade 5% of my account balance per trade, but I only put 50% of my total account in the binary options broker. So for example:
5% of $1000 = $50 per trade
but I only put half of the $1000 into my account
this adds up to $500 dollars
so in essence im actually trading with 10% risk of my account that I use. If I blow it I add the $500 that I have left over. This method has served me well in the past.

binaryking signing out..

Dewey Colon

LEVEL 2 : NOVICE

REVIEWS 7 | REPLIES 4

#1608

forexpipit

August 27, 2015 at 10:31 pm

I must admit that I have never heard of someone doing what you do, binaryking. Guess you can learn something new each day. It actualy makes sense because you dont need the other $500 in your account to trade the size that you want. Binary options is not like the forex market where you need to have extra money in your account to use as leverage. Good thinking there, I’m definitely going to implement this strategy.

Thanks

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