All traders should impose a strict money management process in their binary options trading strategy. The reason for a self imposed money management strategy is to not only increase profits, but is also there to reduce losses to a level where they are easier to absorb. With binary option trading being of a fast nature it can allow traders to accumulate profits quickly, but will also allow losses to build up quickly, so a strong discipline is the basis of a strong money management strategy.
A basic money management strategy will involve choosing a percentage of the total funds on account which are available for any one single trade and having the discipline to never exceed that percentage. A 10% limit is quite simple and one of the most common choices among traders. An example would be a binary option trading account contains $500. The trader would only invest $50 of this amount in any one single trade. In adopting this strategy the trader could lose no more than $50 if the trade ends out of the money, this ensures there are funds for future trades to hopefully recoup this loss.
The percentage of funds to use for a trade should never exceed the self imposed limit, of course a trade of a lower value can be placed without a problem, discipline is required to stay within the percentage limit, but countless traders will tell you a self imposed limit is a must if you want to stand any chance of succeeding. Profit may grow at a lower rate when using lower investment percentages but also your losses will not finish you in a couple of trades. All brokers will have some minimum investment requirement in place, but reducing the percentages should not be problematic. The lower the percentage the lower the risk.
Even if the trade being placed seems certain to end in the money, don’t be tempted to divert away from the self imposed percentage limit, there is no such thing as a dead certain trade in the world of binary options. A good money management strategy should not only concentrate on the percentage being invested, it should also include thought in to which assets are being traded. Basically don’t have all your eggs in one basket a diverse trading strategy can help to spread the risk and reduce losses. Another good trading discipline to follow is to log all trades placed with a small description as to why it was placed, was it a trading signal received, a chart break spotted, economic news released the list is long but this could help you pick a trend of either winning or losing trades. It is impossible to remember why every trade was placed but a short note will help jog the memory.