Binary Options Trading Money Management

Any trader with even a little experience knows that productive work on financial markets can be achieved by just three components: a trading system of proper reliability, strict personal discipline and effective money management. And while the first two factors seem to be quite clear, the third one causes some difficulties. That is why we will consider it today. It should be noted that an optimal organization of money management and better awareness of its work is useful not only for beginners, but also for many traders who consider themselves quite experienced.

What is money management?

To begin with, it is necessary to realize that the somewhat obscure name of money management implies nothing more than optimal and strategically aligned financial management that ensures the greatest possible profit. Interestingly, even though we do understand the necessity of such an approach to our funds, and that it is an obligatory and even fundamental factor for successful trading activity, money management is not given much attention, most traders perceive it as something self-explanatory from the very beginning. And indeed, we often see situations when even quite experienced traders make several profitable, but not very profitable deals and then try to open a larger one that turns out to be loss-making and “eats up” all their earlier profits. Only after that one starts a frantic search of information on proper money management. Only after that one begins to understand that success is not based on fast earnings, but on long term profits. If all received information is gathered together, it becomes clear that money management, in fact, is a science teaching how to manage deposit efficiently for profitable trading in the long term.

Mani management rules

Successful trading is ensured by following just one recommendation, which is that you should not trade more than five per cent of your deposit. This means that if, for example, you have five hundred dollars on your deposit, then transactions should not exceed twenty-five dollars, with the interest rate fixed between ten and twenty-five dollars, even regardless of the profitability or loss of a single transaction. This advice should not be ignored under any circumstances, especially by novice traders. Of course, as the experience is gained the interest rate can increase gradually, first up to seven percent and later up to ten percent, but even with such restrictions it is not recommended to exceed the limits set; this is the only way to protect yourself from withdrawal under the influence of emotions. In some cases it will not be easy to resist, because some deals are so attractive and seemingly obvious, but even in very tempting conditions one has to prevail. It is not for nothing that the saying goes that moving quietly will get you farther.

Basic principles of mani management

In order for money management to be really effective it is necessary not only to know but also to observe a few specific features, we could even say key principles, which we will try to focus on:

1) Sober trader.

Probably the main thing that distinguishes an experienced trader from a beginner is the ability to assess risk and prospects soberly, without being overly enthusiastic. Of course, emotional decisions can sometimes pay good dividends, but most trades made spontaneously fail. After all, trading is not a lottery, but a serious business, which requires, in order to succeed, studying a lot of nuances of the market, a very difficult analysis of its features and continuous improvement of your own strategy. Only work with sober mind can provide long-term profitability.

2) Calculating the volume of the deposit.

Only the correct calculation of the funds to be used in transactions will enable the trader to execute each particular transaction competently. That said, it is worth reiterating that it is extremely important not to go beyond the financial range set for oneself.

Besides, you should not make a deposit at the expense of your last savings. Every experienced options market player is sure to have a certain amount of insurance that allows even after a total loss of the deposit to reflect on the mistakes made and to return to the market.

3) Trend trading.

Every trader knows that a trend is the direction in which the price changes at a certain point in time. All trends are divided into three groups, they are downward (falling price), upward (correspondingly rising) and flat (sideways shift).

If you open a trade in line with the trend, the probability of making a profit is high enough to more than compensate for the risk.

4) The right balance of risk and return.

With experience comes an understanding of the importance of the ratio of profit to risk in making a trade. An experienced trader often adjusts this ratio intuitively, determining the risk limit by the amount he can relatively painlessly lose if he loses.

5) Yield planning.

From the very beginning of entering the binary options business, it is necessary to choose a broker that offers, in addition to reliability, the best profit margin. That is to say, it is better to consider the highest percentage the trader gets when a trade is successful.

6) Minimising losses.

The explanation for this factor can be quite simple. There are several rules known as StopTrade. Here are just three of them, the most basic, for reference:

• It is advisable to start each trading day by determining the maximum number of trades planned to open in each trading session.
• Before entering the market, you must clearly define the maximum number of losing trades after which you must leave the trade.
• Be sure to set a specific amount of profit, upon which it is imperative to close the session.

7) Risk diversification.

This rule can be seen as a move that involves splitting a large volume into several trades. For example, with three hundred dollars allocated to work in one session, it is far more efficient and safe to make six fifty-dollar trades than one for the full amount.

It is also safer if each contract is for a different time or if different instruments are used.

8) Trade according to your system.

Systematic work is more effective in any business. Similarly, when trading binary options, the trader gradually develops his own strategy based on personal experience and preferences, observation of other traders’ actions, indicator readings and a lot of other data.

Of course, there are also well-established strategies developed by recognised market specialists. However, these strategies are mostly used by novice traders; more experienced market participants gradually supplement them and sometimes transform them almost completely.

9) Is there a difference between money management and money management?

The two concepts are quite often practically equated on the Russian-language Internet, so many people perceive them as different names for the same process. However, despite the fact that these concepts are very similar, it should be noted that money management is a concept which is better referred to risk management in open trades. At the same time, the concept of money management can be formulated quite briefly. The main key rule of this concept is to recommend to diversify and hedge risks, and in plainer terms, you should not put all your eggs in one basket.

To conclude our consideration of money management, we would like to emphasise once again that this art serves as an excellent complement to effective trading strategies and helps raise the level of personal discipline and financial culture.

It is better to learn how to manage risk than to let risk manage you!