Trading in any capacity is risky. You do have the potential to make a lot of money, but you can also lose a lot of money, too. Whether you are trading in the stock market, commodity futures, or within the binary options marketplace, you are going to have to assume a level of risk in order to stand the possibility of making a profit. There are many things that you need to take into account before you begin trading as a result of this, but one of the prime considerations is your risk to reward ratio. Ideally, you want to have as much reward possibility as possible with as little risk as possible. Finding a good balance here will be the key to your success, and binary options can help you in a big way while finding this balance.
Kelly Criterion Money Management
The first thing to look at before you even begin trading is your bankroll and your money management rules. How much money have you set aside to trade with? This is important, and you should never need the money you trade with for anything else. If finances are tight, or you cannot afford to lose this money, you should avoid trading. Losing your mortgage money can have serious consequences that you would obviously want to avoid. You should also have enough in your bankroll to warrant trading with the amounts you wish to trade. This is why it is very important to have a proper money management system. A good starting amount is about $10,000, but you can trade effectively with more or less. Many brokers will allow you to open an account with only $10, but your risk of ruin will be very high with this level. You can find out more info about this in Binary.com review and Deriv.com review. Another question you should answer is your end goal. If you want to make a living off of binary trading, $10 is simply not enough.
Next, look at what your level of knowledge is. There is no cutoff here, but a general thing to take into account is that the less experience and knowledge of the markets you have, the lower your correct trade rate will be. If you are just starting out, you will want to risk as little as possible in order to minimize the losses that you will face. There is a steep learning curve here, so you will want to be careful. One good strategy is to use a binary options demo account for as long as possible. IQ Option demo gives you $10,000 free demo funds. US traders can take advantage of Nadex demo. This will help you to learn the ropes a bit and cut down on the amount of newbie mistakes that you will inevitably make. Demo trading allows you to figure out how to use the platform and gives you an introduction to what real time trading looks like—this makes it a very valuable tool for both experienced and beginning traders alike.
Binary Options Money Management
Minimizing risk can also be accomplished by diversifying your trades. This is quite easy with binary options since most brokers give you many different asset classes and multiple timeframes to choose from. By varying what you trade and attempting to trade from a few different timeframe angles, you can achieve a sense of diversity that other marketplaces cannot easily supply you with. You will also want to practice smart money management techniques such as not risking a lot when you don’t have a clear edge over the market. This will become easier for you to see with several months of experience and keeping records.
Your risk will never completely disappear, but with these methods, you can minimize it as much as possible. There’s no guarantee that you will be a profitable trader week in and week out, but practicing safe trading techniques can push the odds a little bit more into your favor.