Why People Lose Their Money When Trading Binary Options
When investing in binary options, new traders often put a lot of money at risk. Because of this, they quickly lose their initial deposits and give up on online trading.
Most people who are just starting out lose their money because they don’t know how to manage risk or money properly.
Heres an example:
Sounds familiar, doesnt it? Lets see why Sam was wrong:
Sam put in $200 and then put $20 or even $50 on a single trade.
Sam didn’t even think about risk management when he did this, because the most he could lose on each trade was 10% to 30% of his account balance. Even the most experienced traders never risk more than 2% of their account. If you do, you could easily blow up your account. I’ll explain why in a bit. Just think of it as the golden rule of money management for now.
Sam didn’t follow any plan.
He made five trades using one strategy, then changed to another, and then, maybe, to a third. This is also a big mistake. You need to make 50 or, better yet, 100 trades to know if a strategy works for you or not. Then you have to look at the result and decide if it helps you reach your goals.
Sam tried to get his money back by increasing the already high investment amount.
Having made a few trades that turned out well in a row drove him crazy, so he upped his investment to $50. This is a sure way to get your account blown up. Stay in control of yourself and never break the rules you set for yourself.
Why It Is Important to Keep the Risk per Trade Ratio at 2%
In binary options trading, it is very important to follow the rules for money management. The 2% risk per trade ratio is ideal for most new traders and should always be kept.
You need to know that a trading strategy really works and makes money only after you try it out and make at least 50 or, better yet, 100 trades. Before that, it will be too soon to draw any conclusions.
No matter what strategy you use, you will still have trades that win and trades that lose. You can’t do anything about it. The important thing is to win more often than you lose. To get a 75% return on your investment, you need to be sure that your strategy will win at least 65% of the time. In other words, you need to win at least 65 out of every 100 trades. If not, your account balance won’t grow and you won’t make any money.
The financial markets are often unpredictable and have a lot of ups and downs. Sometimes, your plan might not work, and you might have a string of losses. If you bet a lot, like putting $20 into a $200 account, you will lose 10% of your total capital in every trade. If you have a few streaks like this, you’ll need to add money to your account soon.
You must keep your risks low if you want to keep your balance even after a string of losses.
Before you start trading, figure out how much you need to put down based on the broker’s minimum investment requirement. If a broker’s minimum investment is $5, you should put down $5 times $50, which comes to $250. So, if you put $5 into each trade, you’ll risk 2% of your account balance, and you’ll be able to test your strategy by putting money into trades at least 50 times. This plan is smart and not too dangerous.
How to Increase Profits without Greater Risk Exposure
You can keep your risk per trade at the same level and make more money by following a few simple rules and techniques. In this section, we’ll show you how to get the most out of your trading while keeping the risk within reasonable limits.
Keeping the risk per trade ratio means you can’t invest more than 2% of your account balance. If you can’t increase the amount you put in, how can you make more money? The answer is easy: you just recalculate the amount you invested, taking into account when your balance is growing.
Let’s say you have $200 in your account and you decide to invest 2% of that, or $4. Now, let’s say you were able to get your balance up to $250. Based on the 2% risk per trade ratio, you can now invest $5 per trade, which increases your chances of making money.
On the other hand, the opposite could also happen. Lets assume your account drops to $150. Now, you can’t risk more than $3 (2 percent of $150).
Calculating your investment amount over and over again can be boring, especially if you are trading quickly (with short-term options), as this takes time.