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Maximizing Profitability

Figuring out how to maximize your profits is an important part of any trading program, but in the fast paced world of binary options, this becomes especially vital to your success because of the sheer volume of trades that you can make. Even a really good trader might not be making as much as they could because of a few different factors. The biggest ones are addressed below.

The Best Binary Options PayoutsThe first thing you need to take into account is your correct trade rate. This can be difficult to estimate if you are new to trading, though. The best way to figure this out is to practice or demo trade for a prolonged period of time before actually investing your real money. Many sites offer demo accounts, but the problem with these is that they normally come with limitations. For example, a site might offer you a free to use demo account, but will only let you use it for 72 hours. This is more than enough time to learn the intricacies of the web interface, but not nearly enough time to figure out your long term correct trade rate. To effectively come up with this correct trade rate number, you might need a few weeks or even months of practice. Devising a spreadsheet in order to track your trades for a while will be helpful. Although this means extra work for you, it will pay you back down the road by giving you a better idea of your accuracy. As you will see, this intuition will help you adjust your trading strategy to your advantage.

Let’s assume that you’ve put in the practice already and you figured out that when you trade corporate stock binary options, you are right 65 percent of the time. This is a great number—a random selection would give you a correct trade rate of only 50 percent so 65 percent is a very good percentage to begin with. If you are right 65 percent of the time, you are probably going to overcome the advantage that the binary options broker starts you out with. This occurs because the rewards are not as big as the risks. You might lose 100 percent of your investment when you are incorrect and only have a return of 70 percent when you are right. This means that you need to be right well more than 50 percent of the time in order to turn a consistent profit.

Maximizing your rate of return is the best way to turn a profit with binary options. When you combine a high rate of return with a high correct trade rate, you are going to be much more profitable. Let’s look at a couple examples to see why this is.

81 Percent Payout at TraderushIf you are getting a rate of return of 75 percent with a 65 percent correct trade rate while trading a standard $100 per trade, you will get a return of $1,375 over the course of 100 trades. This is a return on your investment of over 13 percent. Not a shabby number at all.

If you are only getting a return of 65 percent with the same correct trade rate, your return will be much lower. With the same 65 percent correct trade rate, your returns will only be $725, or a touch more than 7 percent. This is still a good number, but it’s certainly not as good as the previous example. As you can see, picking the right asset can almost double your profitability. Go with the assets that have the highest rate of return. As long as you can consistently keep a good correct trade rate going, this will help you out immensely.

There is an additional way to increase your return, but it is something that should be practiced by experienced traders only. Varying the amount you risk depending upon your perceived advantage has the potential to drastically turn the tables in your favor. Think about it this way, if you are playing blackjack, you are at a disadvantage in comparison to the casino. This is why casinos have this game; it will win money for them over the long run. The same is true of binary options. Based upon the average trader, the broker will always make money over the long run because of the deficit between the amount you risk and the amount that is returned to you.

This might be confusing at first, but it is actually quite simple. You want to risk more when you think you have a better chance of being right, and risk less when you are not as confident. This helps you to earn more when you’re right, and lose less when you’re at a higher risk of being wrong. Varying your amount risked is an easy way to accomplish this. So instead of a flat rate of $100, you want to vary this amount in order to maximize your profits.

Assume you think your trade has an 80 percent chance of being successful. Here, you might want to risk $150 instead of the standard $100. If you were to extrapolate this over the long run, you would earn much more than if you were risking a flat amount—even though you might lose more money 20 percent of the time. This is an advanced skill because it requires a higher degree of intuition about the marketplace.

Let’s look at a sample of 1,000 trades. If you were to think you had an 80 percent advantage on 100 of these trades, you can increase your amount risked accordingly up to $150. Likewise, assume you think you only have a 55 percent chance of success on another 100 trades, so you decide to only risk $50 for these trades. The remaining 800 trades, you decide you have a standard 65 percent correct trade rate, so you risk your usual $100. This means you are risking a total of $100,000 over the course of 1,000 trades. If your predictions were correct in these varying situations you will have earned a total of $13,475 for your 1,000 trades.

However, if you were to risk a flat amount of $100 per 1,000 trades with the same degree of risk you will have only earned $11,350. This gives you a loss of $2,125 over the course of 1,000 trades simply because you were not estimating your advantage and then utilizing it. You can easily make 1,000 trades in a six month period if you are making 5 trades per day. In the lightning quick world of binary options, this is not a lot of trading.

The above math assumes a consistent return of 70 percent for correct trades and a loss of 100 percent on incorrect trades. These numbers will be different in real life. For example, many sites offer up to 85 percent returns on your investment. Some even offer a 15 percent rebate on incorrect trades. Maximizing Profitability for your percentage returned by looking at different brokers and going with the one with the best terms will help you to increase your profits even more.

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