September 18, 2015 at 3:27 pm
I have been seeing a lot of confusion in the industry regarding how much you should deposit with your Binary Options Broker. Most traders get really scared when they need to make their first deposit because they don’t know what to expect. This feeling is totally natural and I can completely understand why they react this way. They read about all the scams and the problems people are having with their brokers. Examples are traders complaining that they can’t get their money withdrawn, not getting what they paid for or losing their deposit. Of course, they will be scared to lose their hard earned cash when they hear stuff like this. As if these reasons are not scary enough on its own, traders still need to worry about their own trading. These factors are why the question “how much should I deposit with my broker” has become such a popular topic.
Let’s get on to the subject. Ok, so you finally became consistently profitable on your demo trading account, and you feel you are ready for the real thing. The next step you should take would be to open a live trading account to put your trading to the test and see how well you can do with all the tricks the market throws at you. Let’s assume you have found a good broker, and you are wondering how much you should deposit. The size of your first deposit will depend on your situation and the trading experience you have acquired. There are two options to choose from: invest the minimum deposit or invest your full amount that you have saved for trading. Now, let’s take a look at what the best option will be.
This is THE most important question you should ask yourself when contemplating how much to deposit. You should only use money that you can afford to lose. Not the money you need for bills, groceries or rent money. ONLY deposit your leftover money and not your entire life savings. Binary Options is not a way that you can make a quick buck to pay your bills. Trying to bet the rent money on a few trades to pay the bills will only cause you to end up with less than what you started with. A big portion of trading involves a person’s psychology. If you are trading with money that you can’t afford to lose, you will experience all kinds of emotional troubles. Not being able to control your emotions while trading, can and will result in you making dumb mistakes that could cause you to wipe out your entire account. So the bottom line is if you don’t have the money to trade then you should rather wait till you have some cash lying around. It will be so much easier on your psychology.
One of the big reasons why people start trading binary options is all the advertisements they see on the internet about people turning small amounts into ridiculous profits. I am not saying that this is not possible, but it will take much longer than what they claim. If you decide you want to make a small deposit and trade with a traditional money management system, it could take you ages to make the type of gains these guys are talking about. Risking 1% – 5% of your account can cause your profit to be minimal. It can become frustrating to see a trade end up as a winner, but you hardly see a difference in your account balance. This frustration can sometimes cause traders to take on more risk than what they should. Do I really need to tell you what happens next? Boom! There goes another account.
These days, you can open a live trading account with as little as $100 – $250 as a deposit. Sure, this does not sound like much to lose, but are we trading to lose money? No, we want to make money. If I wanted to lose my money I would just go to the casino or play the Lotto. The thing about small deposits is it doesn’t leave room for many mistakes, and it will also limit your trading in more than one way. However, if you want to test a broker, you should definitely start with their minimum deposit or a relatively small amount. See how their platform performs when taking trades, test the customer service and most off all check out their withdrawal times. The last thing you want is struggling to withdraw your profits after trading your account for three months. Once you have tested the broker, and you are satisfied, you can then proceed to make a larger deposit. Should you have any doubts surrounding the broker, it will be a good idea to choose another one before making a bigger deposit. Small accounts are also great if you are still not confident enough in your trading skills. It is a perfect way to get your feet wet without suffering a big loss. Trading with a small live account will allow you to get your emotions under control that the demo trading could not provide.
Ok so you have now decided on the perfect broker and how much you will deposit. The next step you should take is to determine what your risk tolerance will be. Some traders think that you lower your risk when you make the minimum deposit. This statement is true and false at the same time. Obviously a trader that makes a deposit of $300 is going to have less to lose compared to a trader who deposits $3000. Now, you might be wondering why I also said that this statement is not true. The problem comes in with money management and the minimum allowed investment per trade with the broker. Let me demonstrate what I am trying to say:
Let’s say you deposit $200 into your binary options account. The broker’s minimum investment per trade is $20. Risking $20 per trade on a $200 account equates to 10% risk of your account. In this scenario, you will only be able to lose 10 times in a row before you wipe out your account.
Let’s assume that you use the same broker as the above example with the same minimum investment per trade ($20). You decide to deposit 10 times the amount of the above account – $2000. If you are still trading with $20 per trade on your $2000 account, you will only be risking 1% of your account compared to 10%. In this example, you will have to lose 100 times in a row for you to wipe out your account.
So who is taking the biggest risk – the trader with the small or large deposit? It is clear that the larger deposit is the safer option if you want to use proper money management to preserve your trading capital. So what we learn from these examples is that we need to consider both the minimum deposit and the minimum investment amount before funding our account.
I have been using a strategy that has been working really well for me the past few months. What I do is, I take my total amount that I want to invest, but I only deposit 20% of that amount. Let’s say you are looking to invest $10 000. In my case, I will only deposit $2000 of that amount. Now, the thing is I don’t risk 1% – 5% of the $2000. I am still risking 1% – 5% of my total investment. For the purpose of this example, let’s say I want to risk 4% of my total investment on a single trade. 4% of $10 000 equals $400. So this means that I will be risking 20% of the $2000 account. Doing this will only allow me to make 5 losing trades in a row, but in reality I am still only risking 4% of the $10 000. If I wiped out my account, I would just deposit the next $2000. This type of money management is only possible with Binary Options because there is no leverage involved as there is in the Spot Forex market.
When you divide your account into portions like this, you will be minimizing your risk exposure. Instead of running the risk of losing $10 000 you will only lose $2000 if things go wrong. Mistakes happen all the time. For instance, you might want to risk $100 but you accidentally enter one extra zero, and now you are risking $1000 instead of just $100. This is only one of many examples of what could go wrong. Use it, don’t use it – do what works best for you.
It comes down to the question – how much will the size of your account affect your trading? Will you be able to make millions from a small $200 account? Well, it is highly unlikely but not impossible. The truth is that your chances of making more money are much higher with a bigger deposit like $5000. After all, we know that – money makes money!
Having a small binary options account undoubtedly has its benefits that cannot be denied. If you are only looking to hone your trading skills and don’t expect to make millions from it, then go with such a deposit. Always remember to first test the broker with a small deposit before you make a bigger deposit. Doing this will save you a lot of money and disappointment in the long run.
Everyone knows that trading is a risky business. The only way to achieve success is to preserve your capital and be able to withstand many losses. Having this ability will give you a chance to learn from your losses and your mistakes without wiping out your entire account. So, the moral of the story is – RISK LESS, EARN MORE!
September 19, 2015 at 11:07 am
These are some very good pointers that you have given us, Alex. It’s true that most people struggle with their psychology when it comes to trading live. I think it is because most of them can’t really afford to lose the money that they deposit. I am still on demo because of the issue of not having enough money that I can afford to lose. They say great stuff happens to those that wait…
Have a good weekend all
September 19, 2015 at 1:24 pm
Another awesome article my friend! I must say that I have never heard about the money management strategy that you implement. It sounds very interesting and actually makes a lot of sense if you think about it. I might also give it a try once I start trading with a bigger account. I am still testing the broker and getting my emotions in check.
September 19, 2015 at 4:36 pm
Small deposits will only waste your time AND money when you are trying to make a living from trading. Believe me, I have been there and got the ticket. It’s good as you said to improve your psychology and get used to all the market’s tricks, but not so much for making worthwhile profits. Demo trade until you have saved a good amount of money that you can use for trading. Don’t get me wrong – it can be done with a small deposit but it will take you a lot longer.
September 19, 2015 at 8:44 pm
What would you guys say is a good amount to start with that do not qualify as a small deposit? I have saved up around $500 so far.
September 20, 2015 at 1:52 am
It’s hard to say but I would advise you to at least deposit $1000. The best would be anything from $2000 and up. If you start with $2500 and you risk 4% of your account on a trade, you can trade with $100 per trade. Just think if you make 2-5 good trades a day, what you could achieve in a month’s time.
Hope that this has shed some light for you.
September 20, 2015 at 4:31 am
Thurman, thanks for coming back to me. It now makes sense to me to take some time and save up more money before I begin live trading.
April 20, 2016 at 11:56 am
You should start with around $500 – $1000 in order that you can receive signals and any other training materials and aids that are available with your broker.
If you are very experienced and do not need any training or signals then start with a small amount test the broker out and see how long withdrawals take and the kind of experience that you get from the broker.
If it’s good and withdrawals are processed within a timely fashion then you may wish to upgrade your account with the broker in question.
March 29, 2017 at 12:25 pm
This really piss me off,I got scammed twice and i couldn’t tell anybody about,this two binary options company are five star rated on different sites and blogs,first I couldn’t reach their vendors and couldn’t sign in my account,I worked at a bank,at least with my knowledge of banking and monetary values should have saved me but that didn’t stop me from putting my life savings and loans into this,I lost my job and I sort for different ways to get my funds back,went to CySEC,credit card companies,my lenders,funds recovery companies and every other way to get my funds back,but still couldn’t get it,I decided to let go and move on,till I met a finance analyst who introduced me,he was really professional and very helpful in six weeks,I couldn’t get my gains but he was able to hack into them to allow me log on to withdraw my invested funds,this really help me put my life back together,for what it cost,this was worth every value,am sure this can help someone here too.you can thank me later.
December 7, 2017 at 9:00 am
Hello, I withdrow the deposit as required, I try to raise a good deposit that would trade on a large. Which broker are you trading with?
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