Bankroll Strategy for Binary Options Trading
The binary options industry is a financial market, this means that the only purpose it offers for people is a way to create revenue
In order to make money from this thou you need to know what it is you are doing and understand the process. Therefor it is crucial for traders and potential traders to develop a bankroll strategy for the binary options market.
One way of developing bankroll strategy which is an organized and feasible is to decide on what your goals and targets are.
This you should divide in to 3 categories.
You start by putting your limits, the best way first of all is to set you maximum exposure (the amount of your funds that are at risk).
I would suggest that you keep this to 5-8% of your total funds, 5% is normally the amount that most traders keep as a rule for managing their funds.
So if you invest $10,000 you will never have more trades open then the total amount of % of that $10,000, in this case that would run to $500.
There is a risk involved with trading in general so putting more on the line would not be a wise way of going about it. Especially with Binary Options where you are basically going for an all of nothing and the all is around (on average) 75% of your invested funds) you do not want to invest all you money at once.
Some of the brokers offer an insurance where you receive part of the funds back in case you out of the money or you have an or you have the opportunity to sell off the contract before expiry (variable options), then you are out of luck if your trade goes bad.
So you need to be sure that you properly utilize the only means of controlling risk available to you.
To calculate your risk in binary options is actually the easy part. So when you agree with yourself that you are willing to maximum put only 5% on the line at any given time it is now time to find you the broker that offers you the proper pay out and tools for trading.
The Binary trading platform will actually, always tell you the pay out and possible returns on your investment the moment you want to open a trade. You will not be able to lose more than the size of the contract you at all times know your exposure , something that with forex trading is a bit more complicated.
It does thou enables the trader to do what is necessary in order to keep his risk within acceptable limits.
Now we get back to the strategy that you have decided on out of the three choices in relation to the goals you set. Since traders who want money coming in with more regularity would definitely be more aggressive in their trading plan, pursuing more opportunities and setting shorter trade profit targets. These traders are also ways more suited to trade binary options, as this format of trading is made for people to open a lot of trades in a relative short period.
For the traders that go for the long term and have the approach to have trades open for a year or longer binary options might not be the right format of trading , thou some brokers do offer this options there are many that allow you to have a trade open for maximum a week or even shorter.
When they open a trade for this extensive periods it is in general done as these traders understand that a little profit compounded over a long period of time will ultimately lead to a huge amount of money.
This leads to a less aggressive trading style since the pressure to deliver results fast are eliminated.
Bankroll strategies for both sets of traders.
The “short term results seeking traders” Group
It requires a good deal of money to with the short term angle since it will require you to trade aggressively within result will results in many winning but also many loosing trades and you should be able to carry the losses if you plan to cash out in short term intervals.
More aggressive trades leads to more mistakes. And keep in mind that that the industry is set against you in this form of trading, think about it, you lose a 100% of your capitol in a losing trade but you win around 75% of your capitol in profit if you win. This means that you have to be way more successful than not on your trades, because even if you win 50% of your trades you will lose money. This automatically eliminates the concept of hedging for trading Binary Options.
There will be a learning curve and you have to make sure you are fully familiar with the tools and the market to make this work , but people are doing this. There are many traders that make good money trading Binary Options and cash out on a weekly basis. Thou this does not make you a good client for the brokerage ☺, as it conflicts with how most of the brokers earn their money.
The “long term traders”
This group are the traders who are not looking for an immediate payout. They want their money to grow over a longer period of time but who want to see a little money go a very long way. They understand that they can increase their $1,000 at 10% returns every month. The risk is low because these traders do not take have to take the same risks as the traders that are looking for the instant results. People tend to forget how fast time is actually going a 6 years sound like an awful long time but if you think what you did six years ago you understand how fast time has gone. If you then invested all those years ago the funds and had the return of a smaller monthly amount you would now years later have a good sum that would be a nice addition to your pension or capitol as a whole.
So which trader are you or are you both?
None of them is exclusive but many short term traders that have not been successful lose their confidence and trust in trading and miss out on the longer plans that would actually have made them a good deal of money. There is also no right or wrong here as everyone should decide for themselves on how to trade but I do want to say this.
If you go for the short term trading. Learn, try find a winning strategy and never put all of your money on the line. This can be huge profitable but at the same time also carries a huge amount of risk in losing everything.